Case Study of a Failed M&A—Concluding Thoughts on HP’s Acquisition of Autonomy

The Mergers and Acquisition Synergies Framework we developed includes measures from research on national culture by Geert Hofstede, Erin Meyer, and Sidney Gray. We used their data to show how cultural factors in cross-border mergers and acquisition can lead to success or failure. Our research is limited to national culture factors, yet as seen in a few instances above, corporate culture can be different from national culture. These differences can cause culture clashes of their own. Further research needs to be performed to explain the differences between national and corporate culture.

Even in the best of circumstances, M&A can be fraught with difficulties. Adding in the complexity of making deals across borders necessitates a greater level of diligence in every phase of the process. Whether the merger failed due to fraudulent accounting or incompetent management by HP,1 the HP Autonomy debacle shows how differences or even similarities in national culture can precipitate difficulties in the post-merger integration process. HP’s failure to properly integrate Autonomy exhibits how value can be destroyed when firms aren’t able to resolve cultural differences. Thus, we recommend that firms engaging in cross-border deal making include researching national culture’s potential impact on post-merger integration a part of the due diligence process.

Previous: Case Study of a Failed M&A-The Role of Accounting and Finance in HP’s Acquisition of Autonomy

Case Study of a Failed M&A—The Role of Environment in HP’s Acquisition of Autonomy

The public had mixed opinions about the HP-Autonomy merger. Some shareholders felt that HP overpaid to acquire Autonomy, a sentiment picked up by the media. Many of the shareholders’ concerns were valid and stemmed from the lack of transparency concerning the deal.

Public Acceptance

Public Perception. The Cherokee have a proverb stating, “Listen to the whispers and you won’t have to hear the screams.” The quote is used to remind those in charge to be mindful of public feedback. Companies can receive feedback in a myriad of ways including increase (decrease) in share price and positive reactions from investment analysts and journalists. The rise of social media has increased the ability for the public to voice its opinions for and against cross-border deals. While most expressed interest for such a large acquisition, there were others expressing disapproval and confusion. One twitter user humorously noted, “Today at my kids (sic) kindergarten orientation the most OH convo was #HP/Autonomy and how it made little sense.”1 While many tend to discount the opinions of the layman, they can be an effective source of feedback: the public’s opinion was spot-on in the case of HP and Autonomy.

Overpayment.Just one month after HP announced its plan to purchase Autonomy, the media produced a plethora of reports revealing the public’s opinion that HP paid too much for Autonomy. The expression of this opinion can be seen by the fall in HP’s stock price throughout HP’s courting of Autonomy: “Between August 18, 2011 (the date the deal was announced) and October 3, 2011 (when the deal was consummated), HP’s market cap plummeted by $15 billion from $58.5 to $43.5 billion.”2 These opinions perhaps foreshadowed the write-down of Autonomy’s value just over a year after its acquisition. One writer simply suggests that Autonomy was not worth the value HP paid; “He overpaid for what is essentially a second-tier software company.”3 Another writer was more aggressive in his opinion by saying, “Of course it was absurdly high. An 80% premium to where Autonomy was trading in London! In fact, here is how newly-installed HP CEO Meg Whitman responded when asked if her predecessor overpaid: ‘It is what it is.’” 4 Whitman seemed to have the same mindset as a writer who said, “While most agree that HP overpaid for Autonomy, the deal is done and it’s got to make the most of it.”5 Since Autonomy had shown increasing growth over periods prior to the acquisition announcement, one writer mentioned that, “…HP, desperate to do a deal, simply overpaid for a company that was going to struggle to maintain its sales and earnings momentum and was deluded about its abilities.”6 This writer not only thought HP overpaid, but also thought that Autonomy would struggle to keep their sales as high as they had been.  Clearly, most of the public agreed that HP overpaid for Autonomy. This united opinion of overpayment may have been a warning for HP to work hard to create the value it expected from Autonomy.

Shareholders. A major indicator that the merger between HP and Autonomy might not work out came from the concerns of HP shareholders.7 Part of the reason that shareholders voiced opinions opposing HP’s acquisition decision relates to the overall lack of transparency HP demonstrated in its briefings to the public. “HP’s failure to communicate convincingly the benefits of the deal to its shareholders, as demonstrated by the significant fall in share price on the day of the announcement, was the start of the transaction’s downfall.”8 Shareholders were confused as to why HP purchased Autonomy when HP’s focus in the past was hardware and Autonomy was a software company. “‘I haven’t really seen a significant long-term vision from HP around Autonomy,’ she said. ‘This company acquisition is a completely different focus from HP’s roots.’”9 Shareholders were not made aware of the benefits Autonomy would provide and HP did not provide information as to the direction it was going in purchasing Autonomy. Because of this lack of communication, shareholders were against this merger from the beginning. In hindsight, HP should have heeded the public’s criticism of the proposed merger. While they possessed little ability to drop the tendered offer, they certainly could have used the feedback to guide their integration strategy. Instead, they failed to “hear” what the public was saying, and suffered as a result.

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Case Study of a Failed M&A—Introduction to HP’s Acquisition of Autonomy

Shortly after Hewlett-Packard appointed Leo Apotheker to lead the company, the board approved the acquisition of the UK-based software company, Autonomy. Hewlett-Packard, well known for its computer hardware, thought the synergies it could have with Autonomy coupled with its brand recognition would give it a strong presence in the software market. This series explores management’s cultural misstep using the Mergers and Acquisitions Synergies Framework to examine how this acquisition ultimately lead to a failed merger.


On September 7, 2016 Hewlett Packard Enterprise Co. announced an $8.8 billion deal to sell the bulk of its software division to Micro Focus International PLC.  The deal represented the divestiture of Autonomy Corp—a software maker acquired in an $11.7 billion mega deal just five years prior. The marriage of the two firms was rocky from the onset, with HP’s shareholders decrying the 79 percent premium HP paid as abhorrently high.1 On November 20 of the following year, Hewlett-Packard announced an $8.8 billion write-down of its investment in Autonomy – citing “serious accounting improprieties… and outright misrepresentations.”2 The allegations of fraud were rebutted by Autonomy’s former CEO Michael Lynch and marked the beginning of a disastrously messy public relations battle fought by Autonomy’s ousted CEO and members of HP management.

In November 2010 Hewlett-Packard, a technology firm based in Palo Alto, California, brought in Leo Apotheker as its new CEO. Apotheker was expected to contribute to HP’s growth through completing value accretive acquisitions. Within a year of being hired, Apotheker spearheaded HP’s acquisition of Autonomy, a software company founded at the U.K.’s Cambridge University. The acquisition of Autonomy represented a marked shift in strategy for HP. While HP had demonstrated capability in the hardware market, they possessed very little prowess in software and computing. Thus, Apotheker attempted to catalyze HP’s entrance in the software market by buying an already well-established company.

Although HP claims that the write down was due to “accounting improprieties”3, there are other factors belying this failed merger. The remainder of this paper provides insight into the impact of cultural differences on the HP-Autonomy debacle, offers examples, and provides guidance about due diligence for cross-border mergers. This paper focuses on the cultural factors discussed in the M&A Synergies Framework: communication, behavior, management, environment, accounting and finance, optimism, and earnings management.

Next: Case Study of a Failed M&A—The Role of Communication in HP’s Acquisition of Autonomy

Case Study of a Failed M&A—Concluding Thoughts on Microsoft’s Acquisition of Nokia

The research conducted in this paper is based upon the Mergers & Acquisitions Synergies Framework, developed by combining outside findings by Geert Hofstede, Erin Meyer, and Sidney Gray.[1] It is limited to national culture factors, which play a different role in business than organizational culture. Further studies may need to be conducted to help distinguish differences between national and organizational cultures.

In reality, Microsoft’s acquisition of Nokia was doomed to fail. The deal was an exercise in futility, governed by the rationale that any attempt to compete with Apple and Google is better than none at all. Such rationale exhibits an astonishing lack of prudence, which is key in making any deal, let alone a cross-border deal. While Microsoft’s rationale for making the deal was poor, management’s lack of patience was worse. Cutting 25,000 employees only two and a half years after acquiring Nokia’s mobile unit effectively killed any chance Microsoft Mobile had of succeeding.

Microsoft Mobile is a study of how differences in national culture can add to already poor conditions. Though differences in national culture are not the primary reason Microsoft Mobile failed, they did add to the complexity inherent in the post-merger integration process. In fact, the differences were small and could have been easily reconciled. Had Microsoft exercised a greater level of patience, Microsoft could have realized many of the sought-after synergies which can arise when companies effectively execute cross-border deals. Microsoft Mobile could have prospered as employees from different cultures came together and cooperated.

Previous: Case Study of a Failed M&A—The Role of Accounting and Finance in Microsoft’s Acquisition of Nokia

Case Study of a Failed M&A—The Role of Environment in Microsoft’s Acquisition of Nokia

The citizens of Finland were unhappy with the announced Microsoft-Nokia merger.  The Finns had long felt national pride from Nokia’s success. Giving up control of this national company to a foreign entity was blow to their identity.  Microsoft did little to alleviate the Finns’ concerns.

Public Acceptance

Public Perception. News and media critics (as well as citizens) in both the U.S. and Finland expressed dislike for Microsoft’s acquisition of Nokia’s mobile unit. From Microsoft’s perspective, many viewed the deal as a gamble – and a poor one – as Nokia was perceived as a dying company. In fact, many decried the deal as a desperate attempt to get into the mobile phone market and gain market share from Google and Apple.

People in Finland reacted very critically towards the acquisition. Nokia was seen as one of Finland’s most successful companies, even though its market share had been declining. The sale of Nokia’s phone division “was a huge psychological blow for Finland and the self-confidence of the Finnish people.”1 The deal left many Finns with a sour taste toward Nokia. One Finns’ reaction to the acquisition displays Finnish resistance to the deal: “‘Nokia is one of Finland’s main brands, and it’s what I tell people abroad —that Nokia phones are from Finland,’ she said. ‘Now I can’t say that anymore.’”2

As Finns saw one of the biggest and most powerful companies from their nation swallowed by an American company, it was an emotional blow to their national pride. Nokia had been one of the biggest contributors to Finland’s GDP and now it would no longer be considered a “Finnish company” but would merely be a cog in an American corporation.


Location. With permission from Nokia’s leaders, Microsoft Mobile decided to take over Nokia’s original headquarters located just outside of Helsinki, Finland. One spokesperson from Nokia said, “As the majority of employees currently working at our corporate headquarters are focused on devices & services activities and support functions, Nokia House will become a Microsoft site once the deal closes.”3 Similar to before the acquisition, employees of the new merged company would have to fly to Finland in order to help with decision making or make long-distance calls at hours outside of the normal work day to compensate for the 10-hour time zone difference.

Regulatory Differences. Since the U.S. and Finland share a positive relationship, no lengthy legal procedures were required on either side of the acquisition. The only regulatory term discussed in the press was the lack of communication between the two companies and the public regarding the merger. As one reporter stated, “Neither party was legally allowed to discuss details about the acquisition in public.”4

Previous: Case Study of a Failed M&A—The Role of Management in Microsoft’s Acquisition of Nokia

Next: M&A Synergies Framework-The Role of Accounting and Finance in the Microsoft-Nokia Merger

S1E6: Saving Face: Doing Business in Southeast Asia

Meet Veasna Neang, a Cambodian educated in the United States, who developed his career in Cambodia, Vietnam, Laos, and Myanmar. He tells us why a student would rather unzip his own pants than tell a teacher his fly is open and why doing business efficiently in Asia always includes significant time socializing.

S1E6: Saving Face: Doing Business in Southeast Asia
International Hub: Cultural Convers...

00:00 / 30:40

Case Study of a Failed M&A— Introduction to Microsoft’s Acquisition of Nokia

On September 3, 2013, Microsoft announced that it would acquire Nokia’s mobile phone division for $7.2 billion. Through a series of missteps, many of them cultural mismanagement, Microsoft informed the public in May 2016, of its intention to write off most of the $7.2 billion it paid for Nokia and agreed to sell the mobile devices unit to HMD Global and Foxconn Technology for just $350 million. This series uses the Mergers and Acquisitions Synergies Framework to explore the cultural issues that lead to Microsoft’s failed merger with a highly regarded mobile phone company.


During the 1990’s and early 2000’s, one company dominated the mobile industry: Nokia. Established in 1871, the Finnish-born company gained a worldwide reputation for producing reliable, standard mobile phones that were internet-enabled and programmed with an array of multimedia features. Eventually, competition in the mobile phone sector rose in 2007 when Apple introduced the iPhone, and Nokia soon found its market share rapidly decreasing.1 Initially, Nokia predicted the smart phone craze would die out and consumers would return to standard mobile phones, but smart phones proved to be more than a passing trend. Nokia’s management failed to understand the wave of radical innovation that revolutionized the mobile industry—as Samsung and Apple produced and sold touch-screen phones. Nokia’s failure to react to the changing competitive climate is reflected in the precipitous fall in its share price from the iPhone’s introduction to Nokia’s own smartphone introduction: its market share faltered, losing almost 10 percent.2

On 10 September 2010, Nokia parted ways with its CEO (Kallasvuo) and hired Microsoft executive Stephen Elop. Hiring Elop was a significant move for a few reasons: he was the first non-Finn CEO in company history, and analysts predicted that hiring Elop would lead to closer cooperation between Microsoft and Nokia3.  Elop pledged to “reverse the company’s market share losses by ‘regaining [Nokia’s] smartphone leadership, reinforcing [Nokia’s] mobile device platform and realizing [Nokia’s] investments in the future.’”4

True to analysts’ expectations, it did not take long for a partnership to arise between Microsoft and Nokia.  On 11 February 2011 Nokia announced a “broad strategic partnership” with Microsoft. The partnership made a lot of strategic sense considering Microsoft’s dominance in software and Nokia’s in hardware – namely the production of mobile phones. The partnership was heralded by the media: “The deal makes Microsoft a key contender and gets Nokia back to the forefront of the smartphone revolution.”5 Despite optimism from analysts, the announced partnership was met with met displeasure among Finns, and Nokia’s share price tumbled 10 percent.6

In 2012 Nokia released its new smartphone, the Lumia, which ran on Window’s newly released OS – Windows 8. Initially, the release of the Lumia led to increasing, albeit tepid, sales for Nokia. Two years after announcing the partnership, Nokia was still losing market share to Apple and Samsung.  Microsoft’s performance during the period didn’t fare much better than Nokia’s. Microsoft’s poor performance was primarily caused by vehement resistance of Windows 8 from PC users, who detested its optimization for mobile devices. With both companies struggling to keep up in the fast-paced smartphone market, they were left to search for a more drastic solution than mere partnership.

On 3 September 2013, Microsoft CEO Steve Ballmer announced that Microsoft would acquire Nokia’s mobile phone division for $7.2 billion.7 Microsoft had been looking for a way to enter the mobile phone industry to better compete with Apple and Google. In acquiring Nokia’s services and devices unit, Microsoft took control of Nokia’s mobile phones and smart devices, design team, licensing agreements, and approximately 32,000 new employees. Given Microsoft’s prowess in software and Nokia’s in devices, the acquisition was anticipated to be a smooth, successful transaction. Furthermore, both CEOs (Ballmer and Elop) acknowledged the acquisition as something that would build upon the existing Nokia-Microsoft partnership.8 In a press release in 2013, Elop told reporters,

“‘Building on our successful partnership, we can now bring together the best of Microsoft’s software engineering with the best of Nokia’s product engineering, award-winning design, and global sales, marketing, and manufacturing. With this combination of talented people, we have the opportunity to accelerate the current momentum and cutting-edge innovation of both our smart devices and mobile phone products.’”9

February 2014 marked the beginning of the newly formed Microsoft Mobile (a subsidiary of Microsoft). Later, in October 2014, Microsoft Mobile announced that Microsoft Lumia would replace the iconic Nokia on the smartphones.10

Despite Microsoft Mobile’s best efforts, the union proved to be tenuous at best, with job cuts of 12,500 and 7,800 occurring in July 201411 and July 201512 respectively.  Finally, on 18 May 2016, Microsoft informed the public of its intention to write off most of the $7.2 billion Nokia deal and an agreement to sell the mobile devices unit to HMD Global and Foxconn Technology for just $350 million.13 The company also announced that it would no longer produce new phones. What had seemed to be a promising venture had feebly wilted.

Differences in national culture severely affected Microsoft’s deal with Nokia. The M&A Synergies Framework identifies the relevant cultural aspects of the Nokia-Microsoft merger and offers insight into what caused the acquisition to fail. These insights point us to things to consider when preparing for cross-border deals between American and Finnish companies.

M&A Synergies Framework

The M&A Synergies Framework was created to analyze culture’s effect on cross-border deal making. Differences in national culture can lead to increased creativity within companies; however, they can also incite bitter conflict. The framework directs dealmakers to better understand how culture can affect their ability to realize synergies, which are the primary rationale for deal making. The framework elaborates on the following cultural elements: communication, behavior, management, environment, and accounting and finance. The M&A Synergies Framework is discussed fully in another series that can be found on This case studies uses the Framework as the basis to understand the cultural reasons why Microsoft’s acquisition of Nokia was not successful.

Next: M&A Synergies Framework—The Role of Communication in the Microsoft-Nokia Merger

Case Study of a Successful M&A—Concluding Thoughts on Lenovo’s Acquisition of IBM PC


Lenovo has yet to resolve all its cultural issues. As one global director said, “Until now, I think… [cultural integration] has not been completed…there still remain many cultural problems…I think this part is the most difficult one for the whole acquisition.”1This is an important reminder that the cultural integration process is measured in years, not months.

Regardless, Lenovo truly is an example of a successful cross-border M&A and is regarded as such in academic literature. Through attentive care and cultural awareness, Lenovo has been able to achieve cultural synergy. The current appointed “Chief Diversity Officer,” Yolanda Lee Conyers, is quoted on the company website saying, “We succeed when each of us respects and appreciates the diversity of the individuals we work with. We transcend traditional geographic and cultural borders to better anticipate and serve the complex needs of our customers around the world.”2 This synergy between the companies has been reflected financially. In 2003, Lenovo had income of $129 million3 and a global market share of 2.0%.4 In the same year, IBM PC Division had losses of $258 million5 and a market share of 5.3%.6 By 2016, although Lenovo was struggling with a $128 million loss due to economic fluctuations and restructuring costs, it had captured the largest global market share of the PC industry at 20.7%7 and had earned net income of $829 million the previous year, remarkable growth for what was once considered an underdog company.8

The Lenovo case is very useful for understanding the cultural issues that are central in M&A transactions and what integration looks like in practice. The lessons learned in the Lenovo-IBM acquisition can—and should—be applied to companies pursuing similar endeavors. To successfully prepare for an M&A transaction, further detailed research would be necessary to understand applicable cultural nuances, gain an educated perspective, and prepare to successfully integrate.

Previous: M&A Synergies Framework—The Role of Accounting & Finance in Lenovo’s Acquisition of IBM PC

First in Series: M&A Synergies Framework—Introduction to Lenovo’s Acquisition of IBM PC

Case Study of a Successful M&A—The Role of Environment in Lenovo’s Acquisition of IBM PC

To say that the announced Lenovo-IBM merger was met with skepticism is an understatement. The US government pushed back as did the press, many leery of losing a company with a long, reputable reputation and technical know-how to a company with strong ties to the Chinese government and whose products were viewed with suspicion. Lenovo overcame some of environmental issues by locating its new company headquarters in the US.


Public Acceptance

Foreign Relations. Since the era of World War II, anti-communism became a common U.S. sentiment. Some Americans still view China—run by the communist party since 1949—with lingering suspicion to this day.1 In the 1990s, China’s central government began efforts to encourage companies to “go global.”2 This resulted in more companies looking to expand overseas or simply acquire other companies in an effort to increase resources and market share. This was one of the motivations for the 2005 acquisition of IBM’s PC division. American news sources called it “the latest example of big Chinese firms aggressively expanding abroad, under orders from their government.”3

Public Perception. At the time of acquisition, many economic and political news sources considered the purchase to be risky for IBM. Competitor Michael Dell of Dell Technologies was quoted as saying of the acquisition, “It won’t work.”4 The Economist believed it “unlikely that Lenovo can bring much by way of management skill or strategy to its target.”6 Economists cited Lenovo’s lower-than-average gross margins and wavering Chinese market share as indicators of potential inability to maintain and improve Lenovo. Additionally, IBM’s own declining revenue growth and continual bottom-line losses were cited as indicators of downturn in the PC market as a whole.

Reactions in the U.S. over the acquisition were mixed, ranging from opposition to acceptance to indifference.  Lenovo’s partial ownership by the communist Chinese government sparked some fear and concern among U.S. citizens and politicians. Ironically, the Chinese public tends to be suspicious of private businesses, assuming that behind the closed doors of private operations, there must be something to hide.7

Chinese companies often have stereotypes to overcome if they are to successfully do business with foreign firms. To Westerners, Chinese companies are occasionally perceived as cost cutting and rule disregarding. The opinion of some was that “Lenovo was unknown in the United States and that made-in-China products have a dubious reputation.”8 Research of consumer reactions has found that negative social norms associated with emerging markets (China) result in lower purchase intentions of consumers from developed nations (the U.S.).9

In contrast, some reactions simply expressed indifference to the change of ownership. As one U.S. branding consultant said, “The deal is a wash. That is, people generally don’t care where technology comes from as long as it works. […] The general reaction is probably just a shrug, and an ‘oh well, OK.’ … We all have such a global mentality now, people think it’s fine for products to come from other places in the world, particularly technology products because it’s generally accepted that there are great technology companies in Asia.”10

The IBM employees themselves were quite enthusiastic about the change, especially since it meant stepping out of the shadow of other IBM divisions: “The general sense of excitement also seemed shared among the IBM PC executives, who had for years felt like the unpopular stepsister in their former company…. At the call center in Raleigh, employees filmed themselves triumphantly throwing their old IBM badges into the trash.”11

The Chinese public had both critics and supporters of the acquisition deal. Some business professionals considered it “a magnificent acquisition” while others stated they were “cautiously optimistic.” Those opposed to the deal believed IBM to be the greater beneficiary of the arrangement. Some Chinese considered the deal to be risky given Lenovo’s limited international exposure and others thought it was an unwise distraction from “the possibility of Lenovo becoming a super IT company.”12

It should be noted that Lenovo has transitioned away from Chinese state ownership. By 2012, stock ownership from the Chinese Academy of Sciences was down to 33.58%. The Academy had reduced its previous 65% stake by selling to private investors in an effort to shift the company away from being owned indirectly by the government and focus instead on market structure.13 However, there are still tensions today in the U.S. regarding the continued connection to the Chinese government. Some politicians support a ban on using Lenovo products in government work for fear of cyberespionage.14 These tensions have yet to be resolved.


Location. Upon the merging of the two companies, Lenovo initially established its main headquarters at an office building in New York but then soon moved to North Carolina, where the former IBM staff continued to work­­. However, as the company has grown and spread globally, there are now key locations all over the world: Beijing, England, France, India, and Hong Kong, just to name a few.

One of the challenges of this acquisition was (and continues to be) the fact that Lenovo, once just located in China, is trying to figure out how to direct a company structure that has existed for 95 years and has been international for decades. As one leader commented, “IBM had a big employee team across more than 100 countries. How to manage them is a still a crucial problem.15

The nature of international business includes the difficulties of time zone differences., a website for the open exchange of employment information, cites many employee reviews complaining about the difficulties of the time zone gap:

“We work very long hours due to the global nature of our jobs.”16

“There are conference calls day AND night, which eat up into time which should be spent with your kids. Mine are about ready to disown me!”17

“If you work in a U.S. office, expect to be on conference calls at all kinds of strange hours–the U.S. employees are the ones who have to cater to the schedules of the other worldwide offices.”18

The difficulty of work-life balance is continuously a topic of conversation on informative public websites. It’s an area of concern that stems from the inconvenience of the global spread of the company.

Regulatory Differences. In addition to lengthy preparatory procedures on the part of both companies, U.S. regulations require careful screening of many M&A transactions originating in countries that are areas of concern, including China. USA Today reported the following:

The relationship sparked U.S. fears the minute the deal was announced. Rep. Don Manzullo, R-Ill., fretted that Lenovo staffers in the company’s Raleigh offices might be able to get into nearby IBM research labs and send cutting-edge technology to China. The Committee on Foreign Investment in the United States, the U.S. government group that vets deals affecting national security, investigated the deal. It eventually gave the go-ahead.19

Approval was received May 1, 2005, about 5 months after the initial announcement of the M&A.

Although regulatory processes can also be difficult on the Chinese side of things, the Chinese government—once invested in a company’s success—is likely to make the path clear. As one academic stated, “Lenovo, with the backing of the government, will be willing to do anything to ensure that this works. It’s too strategic a deal to let fail.”20

Previous: M&A Synergies Framework—The Role of Management in the Lenovo-IBM Merger

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Case Study of a Successful M&A—Introduction to Lenovo’s Acquisition of IBM PC

Lenovo Laptop Keyboard

The relatively unknown Chinese computer manufacturer, Lenovo, set its sights high: acquire the legendary IBM PC division. Though there were many who thought this merger would fail, it became one of the most successful Chinese acquisitions in history. This series uses the Mergers and Acquisitions Synergies Framework to explore the careful way Lenovo managed cultural integration with IBM to become a world leader in computer sales.


Chinese merger and acquisition transactions with U.S. targets are now more common than ever before, peaking in 2016 with 163 unique announced deals totaling an expected value of $78.6 billion USD.1 Arguably, one of the most successful and well-known outbound Chinese M&A deals in recent history was that of China-based Lenovo’s 2005 acquisition of the PC division of U.S. technology giant IBM for a total price of $1.75 billion USD: $1.25 billion in cash, plus debt assumption of $500 million.

Fig. 1 Trends show a dramatic increase in both the number of transactions and the dollar value of out-bound Chinese M&A with U.S. targets.










Lenovo began in Beijing in 1984 as the “New Technology Development Center,” a start-up of the Chinese Academy of Sciences. The practice of government organizations arranging commercial businesses was quite common at the time and was called “guoyou minying,” meaning “state-owned, people-managed.” The Academy hoped it would be a source of income to make up for government budgeting shortfalls.2

In 1988, the start-up company expanded its operations into Hong Kong and adopted the name “Legend Computer Group Co.” Over the next decade, Legend adapted to a role distributing American- and Japanese-made computers and learning trade strategies by partnering with companies such as Intel and HP. Eventually, the company introduced its own self-branded PC, which, with the help of favorable market conditions and government benevolence, began to dominate the Chinese PC market. However, the company sought global expansion. The company name was changed to “Lenovo” since “Legend” was a name already claimed on the international market. In 2004, Lenovo seized the opportunity to purchase IBM’s PC division.3 This was a critical expansionary step allowing Lenovo to eventually obtain the largest share of the international PC market.

As one global business director at Lenovo reported, “We believed that through this acquisition, Lenovo can reach the designated position at one step…and we can benefit from this acquisition in three areas: global market, valuable brand and advanced technology.”4 However, the acquisition came with risks. Lenovo, a much smaller company, had only a fourth of the capital that IBM had at the time and the popularity of the Lenovo brand was limited to China.

Beyond the logistical challenges, the business anticipated difficult culture clashes. As one Chinese consultant stated, “The cultural challenges are going to be big. […] Lenovo hasn’t had a particularly successful track record of partnerships with foreign companies.”5

Culture clashes indeed proved difficult to manage as the two companies combined operations. However, with time and effort, Lenovo was able to achieve cultural synergy and is regarded today as an integration success story.6

This analysis follows the M&A Synergies Framework, developed from careful research of cross-border M&A cases and existing social psychology theories. 7 The framework, as utilized in this application capacity, outlines important considerations when approaching cross-border mergers and acquisitions, especially between U.S. and Chinese counterparts. This analysis addresses communication, behavior, management, environment, and accounting and finance in the context of the Lenovo-IBM integration and provides insights that can apply to future similar transactions.

Next: M&A Synergies Framework—The Role of Communication in the Lenovo-IBM Merger