Chinese computer maker Lenovo Group Ltd's has agreed to buy Germany's Medion AG in a deal valuing the electronics retailer at up to $900 million, to boost its market share in Europe.

The acquisition, Lenovo's biggest since its purchase of IBM's PC business six years ago, comes four months after Lenovo signed a joint venture deal with NEC Corp to sell laptops in Japan.

The deal will double market share to more than 14 percent of the PC market in Germany, Europe's biggest economy, and give the combined company a share of about 7.5 percent in the western European PC market, Lenovo said on Wednesday.

The news pushed Medion's shares 17 percent higher in Frankfurt, but Lenovo shares fell more than 3 percent as some investors questioned the rationale of the purchase.

Lenovo probably wants to add to its presence in mature markets, said Vincent Chen, an analyst with Yuanta Securities. The question is why Germany, because that's a very slow growth market and it raises questions on how much benefit this will bring to them.

At the same time, larger rival Acer, the world's No.2 PC maker, said it will take a $150 million charge to write down excessive inventory and cover potential accounts receivable problems in Europe, and will also lay off 300 staff in the region.

Medion is a supplier of low-priced computer and electronic devices based in the western German city of Essen. It became a household name after it started cooperating with German discount retail chain Aldi almost two decades ago.

It was founded by Brachmann, a TV engineer, who launched his business by importing non-food items, such as microwaves, from Asia.

The two companies agreed that no jobs would be cut or sites shut down as a result of the takeover, and Medion's management will remain in place.

LOOKING FOR VOLUME

Lenovo, maker of the Thinkpad laptop, will pay 231 million euros ($340 million), or 13 euros per share, to Medion's biggest shareholder Brachmann for a 36.6 percent stake.

Brachmann owns almost 55 percent and will keep about 20 percent of the shares. CFO Eigen, who holds 75,000 shares, has also agreed to divest his stake, and Lenovo will make a conditional offer to all other shareholders.

Through this process we will gain 55-80 percent of the company, a Lenovo spokeswoman said.

Accounting for Brachmann's retained stake and treasury shares held by the company, Lenovo will pay up to $666 million for the deal.

Razor-thin margins have forced PC brands to look to acquisitions and alliances with rivals, and most PC brands, such as Lenovo rivals Dell and HP, have turned to computing services to boost earnings.

Lenovo has instead raised shipment numbers to boost margins, with the increased volume giving them stronger bargaining power with component suppliers and contract manufacturers, such as Taiwan's Hon Hai.

They are probably trying to play the volume game, said Yuanta Securities' Chen.

Lenovo's mature markets division, which includes the United States and Europe, is largely made up of leftovers from its purchase of IBM's PC unit.

The mature markets unit has struggled to make a profit and Lenovo had to depend on its home China market for growth. Its mature markets division only returned to the black about a year ago.

Globally, Lenovo had a 10 percent share of the PC market in the first quarter of 2011, up from 8.4 percent a year ago. This was the best performance among the top five players tracked by research firm IDC.

Lenovo Chief Executive Yang Yuanqing said the company was open to more takeovers to grow its business.

Barclays Capital is the sole financial adviser for the deal.

(Additional reporting by Anneli Palmen in Duesseldorf, Germany, Jonathan Standing in Taiwan, and Huang Yuntao in Hong Kong; Writing by Nicola Leske; Editing by Louise Heavens)

(This story was corrected in the first paragraph to change the size of deal in first paragraph. The values Medion at up to $900 million, while Lenovo will pay up to $666 million for a majority stake)

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