China's Lenovo Group Ltd. agreed on Wednesday to buy Brazilian electronics maker CCE, as the world's No. 2 PC maker by sales looks toward Brazil's promising consumer market to revive its slowing profit growth.
The deal, announced in a securities filing, is valued at a base price of 300-million reais ($145-million), subject to adjustments. Payment, in a mix of stock and cash, could include an additional 400-million reais, depending on performance-based indicators over the four years ending in December 2016.
Lenovo's purchase of CCE, Brazil's largest domestic manufacturer of electronics such as PCs, DVD players and stereos, will allow the Chinese company to nearly double its share of the PC market in the world's sixth-largest economy.
The deal will also add mobile phones and televisions to Lenovo's product line in Brazil, helping it expand beyond its current focus on the corporate sector.
"CCE is an excellent fit with its four-screen product portfolio and a valuable manufacturing base in Brazil," Yang Yuanqing, chairman and CEO of Lenovo Group, said in a statement.
The deal highlights the growing, yet uneven trade ties between Brazil and China, two large emerging economies. While Brazil benefited over the past decade from China's voracious demand for raw materials such as iron ore and soybeans, Chinese exports of manufactured products have hurt Brazilian industry.
China is still Lenovo's main sales driver, contributing around 42 per cent of its total revenue, though slowing growth has sapped demand. In response, Lenovo has aggressively expanded into other regions, primarily through overseas acquisitions.
Lenovo values the Brazilian market for PCs, smartphones, tablets and SmartTVs at $124-billion (U.S.).
"In recent years, we have established a No. 1 position in emerging markets, and we hope to do the same in Brazil," Lenovo said in a statement, adding that CCE's management team would be maintained. "We are attacking hard in the large, fast growing BRIC (Brazil, Russia, India, China) markets."
According to Morgan Stanley, Lenovo is close to breaking even in emerging markets, but Brazil is where the majority of its losses are incurred, largely due to high import taxes and weak distribution.
CCE, controlled by privately held Digibras, runs seven factories in Brazil and posted 1.6-billion reais in revenue in 2011. The company said it produced 774,000 PCs last year and expects to assemble 887,000 in 2012.
Shares of Lenovo closed down more than 7 per cent in Hong Kong ahead of the news on Wednesday after NEC Corp sold its entire stake in the company in a deal worth ¥18-billion.