IBM will keep an 18.5 per cent stake in the company, said Lenovo's chairman Liu Chuanzhi.

It is taking over IBM's desktop PC business, including research and development and manufacturing, he told reporters.

The acquisition would make it the third-largest PC company in the world, he said.

Like other major Chinese manufacturers hoping to expand overseas, it is planning to leverage a well-known foreign brand. He said the company would be entitled to freely use IBM's brand name in five years' time.

Lenovo is China's biggest computer maker, claiming a 27 per cent market share, and is also the biggest in Asia. Its shares are traded in Hong Kong.

The announcement on Wednesday followed reports that a deal was imminent. On Tuesday, its Hong Kong unit confirmed it was in talks with a 'major international company in the information technology business' but hadn't named the company, saying the negotiations were confidential.

'The bigger the baby, the more difficult the delivery,' Mr Liu quipped when asked about the delay in making a formal announcement.

The deal shifts IBM to a peripheral role in a corner of the technology industry it pioneered.