Lenovo Group Ltd. is joining the list of suitors considering a bid for BlackBerry Ltd., raising concerns that the Canadian company's ultra-secure communications network for the global elite might end up owned by a firm based in China.
BlackBerry provides mobile phones and an encrypted wireless network to many of the world's largest corporations and most Western governments, including top officials in the United States and the country's military – and would likely draw scrutiny in Washington and Ottawa.
If Lenovo's reported interest resulted in a deal, the takeover attempt would be subject to a tough regulatory review in Canada. The federal government has killed several foreign takeovers under the Investment Canada Act.
That act permits reviews of deals worth more than $344-million. The government has also granted itself broader powers to halt takeovers of Canadian firms by foreign state-owned companies, particularly those from China. And Ottawa recently barred a bid for Winnipeg-based telecom company MTS Allstream by an Egyptian-led group on national security grounds.
"If the Egyptian company raised some red flags for the Canadian government, we should have red fireworks going off if a Chinese company wants to buy BlackBerry," said Michel Juneau-Katsuya, the former head of Asia-Pacific at the Canadian Security Intelligence Service (CSIS) and chief executive of the Northgate Group, an Ottawa-based cyber-security firm. "BlackBerry is the prime phone used by all government officials and top officials… For that reason alone, it shall not and could not be sold to a foreign entity that is not within the realm of [our] close network of friends."
Late on Thursday, the Wall Street Journal reported that Lenovo had signed a non-disclosure agreement with BlackBerry that would allow the Chinese firm to examine the books of the Waterloo, Ont.-based smartphone maker. Executives at Lenovo, which bought IBM Corp.'s personal computer business for $1.25-billion (U.S.) in 2005, have said they were considering a purchase of BlackBerry earlier this year to strengthen their mobile phone business.
Lenovo's Hong Kong-listed shares fell 1.7 per cent on Friday, closing at HK$8.07.
BlackBerry, formerly Research In Motion Ltd., has seen its business collapse in recent years, and the company is considering all options, including a sale. Many potential suitors are circling BlackBerry, including a consortium of companies led by Fairfax Financial Holdings Ltd. and a separate possible bid led by Mike Lazaridis, BlackBerry's former long-time CEO.
A spokesperson for Lenovo declined to comment. A spokesperson for BlackBerry said a committee is "conducting a robust and thorough review of strategic alternatives," but that the company will not disclose details "until we approve a specific transaction or otherwise conclude the review of strategic alternatives."
Lenovo's chief financial officer previously said the Chinese firm, which is not big in mobile phones, was considering a run at BlackBerry. "We are looking at all opportunities – RIM and many others," Lenovo's Wong Wai Ming told Bloomberg News in January.
In an emailed statement, Jessica Fletcher, director of communications for Industry Minister James Moore, said the government is aware that BlackBerry is exploring strategic options. "We do not comment on that process.As for speculation, we have no comment."
Lenovo was also one of the joint venture partners wanting to license BlackBerry technology in China in a proposed deal that eventually fell apart between BlackBerry and China Investment Corp., one source familiar with discussions told The Globe and Mail. This person also said two Chinese companies were interested in the BlackBerry auction, but they faded away months ago because of the concerns their bids would raise.
Mr. Juneau-Katsuya said members of Canada's intelligence community told the government to reject China National Offshore Oil Corporation Ltd.'s $15.1-billion takeover of Calgary-based oil firm Nexen Inc., and would likely tell the Canadian government stop any Chinese takeover of BlackBerry.
However, Lenovo may not be as scary to the Canadian and U.S. governments as Huawei Technologies, a massive Chinese networking company founded by a former People's Liberation Army engineer, according to one former BlackBerry executive with ties to the company. This person said Lenovo's products, such as laptops and computers, were less likely to cause concern than Huawei's more "opaque" networking and wireless equipment.
Financial analyst Peter Misek said that, although a deal with Lenovo is only one of several options, the Canadian government may lack alternatives. However, he added, any national security concerns could be addressed by setting up a separate company to handle sensitive accounts. "You can spin out the government employees and set up a separate entity," said Mr. Misek, an analyst at Jefferies & Co.
With a report from Jacquie McNish