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Lenovo Announces US$350 Million Strategic Investment from Leading Private Equity Firms

   

Hong Kong, March 31, 2005 – Lenovo Group Limited ("Lenovo") (HKSE: 992; ADR: LNVGY) today announced an agreement with three of the world's leading private equity firms, Texas Pacific Group ("TPG"), General Atlantic LLC ("GA") and Newbridge Capital LLC ("Newbridge"), to provide Lenovo with a US$350 million strategic investment for its acquisition of IBM's PC business.

Among the total amount to be raised from this placement, approximately US$150 million will be used to finance the acquisition. The balance (approximately US$200 million) will be added to Lenovo’s general working capital and used for general corporate purposes. This strategic transaction provides an alternative funding means to Lenovo. More importantly, Lenovo will benefit from TPG, GA and Newbridge’s recognized expertise in helping technology companies successfully implement their long-term strategies. Per the agreement, Lenovo will issue to TPG, GA and Newbridge an aggregate 2,730,000 unlisted Series A cumulative convertible preferred shares (“Preferred Shares”) at an issue price of HK$1,000 per share and unlisted warrants to subscribe for 237,417,474 shares for a total of US$350 million cash consideration. TPG is investing US$200 million, GA US$100 million and Newbridge US$50 million.

The Preferred Shares bear a fixed cumulative preferential cash dividend, payable quarterly, at the rate of 4.5% per annum and are redeemable at the option of Lenovo or the holders at any time after the seventh anniversary of the closing of this transaction. In aggregate, the Preferred Shares will be convertible into 1,001,834,862 common shares of Lenovo at a conversion price at HK$2.725 per share. The conversion price represents a premium of 16.7% compared to the average closing price of Lenovo's common share of HK$2.335 for the 30 consecutive trading days up to and including March 24, 2005. Each warrant carries the right to subscribe for one common share of Lenovo at an exercise price of HK$2.725. The warrants have a maturity of five years. The issue of the Preferred Shares and warrants requires the approval of Lenovo’s shareholders. Upon full conversion of the Preferred Shares and assuming the issue of shares to IBM upon closing of the acquisition of IBM's PC business, TPG, GA and Newbridge will own approximately 10.2% of Lenovo's enlarged issued share capital. Assuming full exercise of the warrants, the investors will own approximately 12.4%.

Yuanqing Yang, current President and Chief Executive Officer and Chairman designate of Lenovo, said "We are delighted that three of the world's leading private equity firms will be strategic investors in the new Lenovo. TPG, GA and Newbridge have extensive insight into business operations, as well as strong competency in strategic planning. With rich experience helping companies integrate operations, their participation in the new Lenovo will further ensure a smooth transition period and stable development in the future. This agreement represents a strong vote of confidence in Lenovo’s prospects going forward as a global information technology leader."

Mr. Yang continued, "As leading private equity firms, TPG, GA and Newbridge also have strong understanding of the governance structure of multinational operations as well as rich experience working with IT investors. They have been strong supporters of our acquisition of IBM's global computer business and, we are pleased that they share the current Board's view regarding the great potential of the business. Going forward, they will work with us to ensure a seamless flow of communication with the investment community."

James G. Coulter, Managing Partner of TPG, stated, "TPG is pleased to make this strategic investment and to enter into a strategic partnership with Lenovo. The combination of Lenovo and IBM's PC business is a powerful one, and we are excited about being part of this landmark transaction. The combined company has a strong global presence, leading technology and the best mobile product in the world in the ThinkPad. In addition, it has the #1 market position in China, the fastest growing PC market in the world. We are excited about Lenovo’s growth prospects and look forward to working with the management team to create additional shareholder value."

William O. Grabe, a Managing Director of GA, stated, "Having worked alongside Chairman Liu for several years, GA has been honored to work closely with Lenovo over the past year as it planned and prepared for a transformational transaction. We are very pleased now to extend our relationship with this true pioneer of the Chinese information technology sector, and its talented management team, as an investor and board member. Combined with Lenovo's powerful market position in Asia, its acquisition of IBM's PC business provides Lenovo with significant new opportunities, through both synergies and by expanding the market for its desktop and laptop PCs globally. We are confident in Lenovo's growth potential and look forward to helping it to achieve its objectives." Weijian Shan, co-Managing Partner of Newbridge, said, "Through this acquisition, Lenovo is leading an important trend of Chinese companies moving onto the global stage. Newbridge is pleased to join with TPG in supporting Lenovo’s management team in making this vision a reality."

After giving effect to the closing of the IBM PC business acquisition and the closing of the investment, IBM will receive approximately US$800 million in cash and Lenovo common shares representing a value of US$450 million, based on the closing price of shares on the last day of trading prior to the December 2004 announcement.

Upon closing of both the investment and the acquisition, IBM will hold a 13.4% ownership share assuming full conversion of the Preferred Shares. IBM's voting interest in Lenovo will remain the same. IBM's Global Financing and Global Services, the number one IT services organization in the world with powerful existing enterprise channels, will be preferred providers to Lenovo for leasing and financing services, and for warranty and maintenance services, respectively. The strong strategic business alliance between Lenovo and IBM formed through the acquisition is taking shape alongside the planned integration process with both parties fully committed to the prospects ahead.

About Texas Pacific Group TPG is a leading global private equity investment firm and currently manages over US$13 billion of committed equity capital. TPG's portfolio companies total over US$35 billion in revenues and over 500,000 employees. TPG is the leading global private equity investor in technology whose investments include MEMC Electronic Materials, ON Semiconductor, Seagate Technology, Business Objects, Conexant Semiconductor, Eutelsat, Isola, Network General, Paradyne Networks and Smart Modular. Other TPG investments have included Burger King, Continental Airlines, Del Monte Foods, Ducati Motorcycles and J.Crew. TPG is based in Fort Worth, Texas, San Francisco and London.

About General Atlantic LLC General Atlantic LLC, is a leading global private equity firm focused on investing in companies providing information technology or using information technology to drive growth. General Atlantic has been an investor in China and East Asia for five years, and operates an investment office in Hong Kong led by GA Managing Director Vince Feng. In addition to Lenovo, General Atlantic's current investments in China include Vimicro and Digital China. The firm was founded in 1980 and has about US$8 billion in capital under management. General Atlantic has invested in over 140 companies and has current holdings in over 50 companies, of which almost one half are based outside the United States. The firm is distinguished within the investment community by its global strategy and worldwide presence, its commitment to provide sustained value-added assistance for its portfolio companies and its long term approach. General Atlantic has nearly 70 professionals among its 130 employees worldwide with offices in Greenwich, New York, Palo Alto, Washington, D.C., London, Düsseldorf, Singapore, Tokyo, Mumbai, Hong Kong, and São Paulo. For further information and a listing of our public and private portfolio companies see www.generalatlantic.com .

About Newbridge Capital LLC Newbridge Capital LLC is one of Asia's leading private equity investment firms with US$1.7 billion of capital under management. Founded in 1994 by Texas Pacific Group and Blum Capital Partners, Newbridge was one of the first private equity firms dedicated to Asian investments. The firm has offices in Hong Kong, San Francisco, Shanghai, Tokyo, Seoul, Mumbai and Melbourne. Newbridge has made significant investments in such companies as Advanced Interconnect Technologies, Hanaro Telecom, Japan Telecom, Korea First Bank, Matrix Laboratories, Shenzhen Development Bank and Zoom Networks.

About Lenovo Lenovo Group Limited (HKSE: 992; ADR: LNVGY) is a leading IT enterprise in China. The Group engages primarily in the manufacturing and sale of desktop computers, notebook computers, mobile handsets, servers and peripherals in China. Lenovo brand PCs have been the best seller in China for eight consecutive years, commanding a 26.3 percent unit share of China's PC market in 2004. Lenovo PCs also ranked number one in the Asia Pacific (excluding Japan) market with a 12.2 percent market share in 2004 (source: IDC).

Lenovo was listed on The Stock Exchange of Hong Kong in 1994 and is currently a constituent stock of the Hang Seng Index and the MSCI China Free Index. Its American Depositary Receipts are traded in the United States. In March 2004, Lenovo joined The Olympic Partner Program of the International Olympic Committee ("IOC") as the first Chinese company to become the computer technology equipment partner of the IOC for the period from 2005 to 2008.

The IBM Personal Computing Division ("PCD") is the leader in PCs for business productivity and the most demanding personal computing applications. PCD delivers PC enhancements, innovations and solutions that shape and define the computing industry. IBM ThinkPad notebook PCs have won more than 1,000 industry awards. IBM ThinkPad notebook and ThinkCentre desktop personal computers utilizing IBM ThinkVantage Technologies are available through a combined worldwide distribution and sales network spanning 160 countries. In December 2004, Lenovo and IBM announced a definitive agreement to acquire IBM's global desktop computer and notebook computer business. The transaction is expected to be completed in the second quarter of 2005. For more information, please visit www.lenovo.com