BlackBerry Ltd. (BBRY) Lenovo Merger Would Face Regulatory Hurdles

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As we reported yesterday, Chinese computer maker Lenovo Group Ltd. (OTCMKTS:LNVGY) (HKG:0992) has expressed renewed interest in BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB). Sources familiar with the matter told Reuters that the Chinese company has signed a non-disclosure agreement with the Canadian company to examine the latter’s books. However, if it bids for the entire BlackBerry Ltd. (NASDAQ:BBRY) (TSE:BB), the Chinese company will face massive regulatory hurdles. So, Lenovo Group Ltd. (OTCMKTS:LNVGY) (HKG:0992) may pursue just a part of the Z10 maker.

BlackBerry Ltd. (BBRY) Lenovo Merger Would Face Regulatory Hurdles

Blackberry acquisition an important security issue

Lenovo Group Ltd. (OTCMKTS:LNVGY) (HKG:0992) had also expressed interest in the company a few months ago. Since BlackBerry Ltd. (NASDAQ:BBRY) (TSE:BB) put itself up for sale, the company has drawn interest from a number of potential buyers, ranging from private equity firms to  its own competitors. A consortium led by BlackBerry Ltd. (NASDAQ:BBRY) (TSE:BB)’s largest shareholder Prem Watsa has made a preliminary offer of $9 per share to take the company private. BlackBerry Ltd. (NASDAQ:BBRY) (TSE:BB) is currently reviewing alternatives to Prem Watsa’s offer.

The sale of BlackBerry Ltd. (NASDAQ:BBRY) (TSE:BB), or any part of it, will go through strict regulatory scrutiny in Canada and the U.S. The secure network is BlackBerry Ltd. (NASDAQ:BBRY) (TSE:BB)’s most important asset. It handles millions of highly confidential government and corporate emails every day. So, the U.S. government will not let it go to a Chinese company for security reasons. Security experts argue that, in any case, the secure network will go to a North American company. So, Lenovo Group Ltd. (OTCMKTS:LNVGY) (HKG:0992) may likely bid for the Canadian company’s handset business.

On the other hand, Canadian regulations allow the federal government to block any foreign acquisition of a Canadian business. The government can block a deal if it thinks that the deal could be a threat to national security or if the takeover doesn’t bring a ‘net benefit’ to the nation.

Why is Lenovo interested in BlackBerry?

Lenovo Group Ltd. (OTCMKTS:LNVGY) (HKG:0992) has grown to become the world’s fifth-largest smartphone vendor. But 98 percent of its smartphone sales still come from its home market. Lenovo Group Ltd. (OTCMKTS:LNVGY) (HKG:0992) hasn’t succeeded in overseas markets. Even in China, the company is facing stiff competition from rapidly growing Xiomi. Acquiring BlackBerry Ltd. (NASDAQ:BBRY) (TSE:BB)’s handset business could help Lenovo Group Ltd. (OTCMKTS:LNVGY) (HKG:0992) improve its presence in overseas markets.

BlackBerry Ltd. (NASDAQ:BBRY) (TSE:BB) shares jumped 0.85 percent to $8.28 at 11:36 AM EDT.

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