Lenovo-IBM talks over server business break down

May 1, 2013, 8:32 PM UTC

FORTUNE — Negotiations between Lenovo and IBM over a multi-billion dollar deal under which Lenovo would acquire parts of IBM’s server business have broken down, according to people familiar with the situation.

While the discussions could resume, they were halted over valuation concerns, according to a person familiar with the talks.

Spokespeople for Lenovo and IBM (IBM) declined to comment.

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News of the negotiations surfaced last month in various publications and were confirmed by Fortune. Bloomberg put the value of the potential deal, which would cover IBM’s sale of its so-called x86 server business, at between $2.5 billion and $4.5 billion. Others suggested IBM was seeking as much as $6 billion. Lenovo is said to have balked at the price tag for the business, which generates close to $5 billion in sales, or about a third of IBM’s overall server revenue, according to estimates.

Lenovo, the world’s No. 2 computer maker behind HP (HPQ), has been seeking to bolster its server business. The x86 servers, which represent the lower end of the server business, would allow Lenovo to compete more effectively with HP and Dell (DELL).

Lenovo, which in 2005 bought IBM’s PC business, has been growing faster than rivals for the last few years. In the most recent quarter, which saw the worst decline in PC sales in the industry’s history, Lenovo was the only one of the major computer makers to hold its ground, according to research firm IDC. The company has also expanded into smartphones and tablets.