Rally prompts private equity firms to unload HK$2.9b Lenovo shares

PUBLISHED : Wednesday, 07 November, 2007, 12:00am
UPDATED : Wednesday, 07 November, 2007, 12:00am


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Private equity firms TPG, General Atlantic and Newbridge Asia offered to sell HK$2.92 billion worth of Lenovo Group shares to capitalise on the stock's recent rally, a source said.

Funds managed by the three firms hired Goldman Sachs to find institutional buyers for 350 million Lenovo shares at between HK$8.16 and HK$8.33 each, according to a term sheet sent to investors yesterday.

The offer price represents a discount of 4.58 to 6.53 per cent to the stock's close of HK$8.73 yesterday. The funds agreed not to sell more shares within 60 days after the deal.

The share sale will be the second disposal by a Lenovo shareholder in six months, following the HK$670 million sale by IBM Corp in May.

Shares in Lenovo, the world's third-largest personal computer maker, have gained 46 per cent in the past month, hitting seven-year highs after the company said first-half profit rose 299 per cent to US$172 million.

'Stake sales by strategic shareholders may have a negative impact on Lenovo's share price but won't inflict any serious harm in the long run as the company has strong growth in revenues and profits,' said Michael Wong, a research director at Hantec Investment International.

'Just like a few months ago, after IBM sold its stake in Lenovo, the company's share price rebounded as the uncertainty has been cleared up.'

Mr Wong expects the shares to further rise to HK$9 if the company's US business continues to do well.

Lenovo's profit growth in the first half was driven by sales of notebook computers, which rose 23 per cent to US$4.57 billion. That helped boost the gross profit margin to 15 per cent from 13.6 per cent.

The firm yesterday unveiled its first new Think-branded products since buying the IBM personal computer unit. ThinkStation S10 and D10 are aimed at professionals in industries such as oil and gas exploration, and digital content creation.

Chairman Yang Yuanqing has said his company plans to expand its product range, such as consumer personal computers, outside the mainland next year and will also tap more higher-margin products such as servers and workstations.

Investment bank Citi revised up the forecasts of the firm's 2008 and 2009 earnings per share by 10 per cent each after the earnings report, and raised the target price to HK$12.

'US-based institutional investors think many mainland stocks are overvalued so they will pare some of them,' said Yiu Chin, a director at Altruist Financial Group who expects the stock to reach HK$10 in a few months. 'But the stake sales will only have a very mild impact on Lenovo's share price, because the stock will benefit from the qualified domestic institutional investor scheme.'