China's Lenovo is buying Germany's Medion in a deal valuing the consumer electronics retailer at around $900 million as the world's No.4 PC brand expands its market share in developed economies.

The acquisition, Lenovo's biggest since its purchase of IBM's PC business six years ago, comes four months after the world's No.4 PC brand signed a joint venture with NEC Corp to sell laptops in Japan.

Lenovo will pay 231 million euros ($340 million), or 13 euros per share, to Medion's biggest shareholder Gerd Brachman for a 36.6 percent stake, the two companies said in a statement on Wednesday. It will also make a conditional offer to all existing shareholders.

The news pushed Medion's shares 19 percent higher in Frankfurt, but Lenovo shares fell more than 3 percent as some investors questioned the rationale for 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.

Razor-thin margins have forced PC brands to look to acquisitions and alliances with rivals.

Lenovo's mature markets division, which includes economies such as 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.

China's best known PC brand had some $3 billion in cash at the end of 2010, it said in a stock exchange filing in March.

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 Officer Yang Yuanqing said the company was open to more takeovers to grow its business.

If the acquisition helps us to realize our strategy, we will consider it. We think both the NEC deal and the Medion deal helped us to realize our strategy, Yang said by telephone.

Margins have thinned rapidly in recent years as laptops become increasingly commoditized, and most PC brands such as Lenovo rivals Dell and HP have turned to providing computing services to boost earnings.

Lenovo has instead turned to raising 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.

Globally, Lenovo had a 10 percent share of the PC market in the first quarter of 2011, up from 8.4 percent during the same period in 2010. This was the best performance among the top five players tracked by research firm IDC.

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

Barclays Capital is the sole financial adviser for the deal.

(Additional reporting by Huang Yuntao in Hong Kong; Editing by Jacqueline Wong and Anshuman Daga)

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