Flextronics Agrees to Buy Solectron for $3.6 Billion
June 4 (Bloomberg) -- Flextronics International Ltd., the world's second-biggest maker of electronics for other companies, will buy Solectron Corp. for $3.6 billion to narrow the sales gap with larger rival Hon Hai Precision Industry Co.
Bloomberg.com: U.S.
Shareholders of Milpitas, California-based Solectron can choose to get 0.345 share of Flextronics or $3.89 in cash for each share, the companies said in a statement today. The cash bid is 15 percent more than Solectron's closing price on June 1.
Flextronics said the deal for Solectron, the world's fifth- biggest electronics maker, will boost sales to about $30 billion annually, trailing Hon Hai's NT$1.32 trillion ($40 billion) in revenue last year. Solectron's customers include Cisco Systems Inc. and International Business Machines Corp.
The deal ``adds a couple of good customer relationships in Cisco and IBM,'' Cowen & Co. analyst Louis Miscioscia said in an interview. ``It also gives them more size and scale, which allows them to make more efficient use of their facilities.''
Shares of Solectron surged as much as 50 cents, or 15 percent, to $3.87 at 12:50 p.m. in New York Stock Exchange composite trading. Shares of Singapore-based Flextronics fell 19 cents to $11.51 in Nasdaq Stock Market trading.
``It's a bit of a surprise and doesn't offer immediate accretion, so investors will be a little bit wary,'' Miscioscia said. ``But in the end it's the right thing for the company.'' The New York-based analyst rates Flextronics ``outperform'' and Solectron ``neutral.''
Deal a `Surprise'
Solectron's shareholders will own 20 percent to 26 percent of Flextronics' outstanding shares, according to Miscioscia. As part of the agreement, Solectron has the right to nominate two individuals, approved by Flextronics, to the board of directors of the combined company.
``Solectron's strength in the high-end computing and telecom segments will be an invaluable addition,'' Flextronics Chief Executive Officer Mike McNamara said in the statement. ``The combined company will be a market leader in most product market segments.''
The combination will cut costs by as much as $200 million after taxes in the 18 to 24 months after the deal is completed, and boost earnings per share by at least 15 percent, Flextronics said. The transaction should close by the end of this year.
The company reported fiscal fourth-quarter profit tripled to $121 million as sales gained 32 percent.
Flextronics finance chief Tom Smach didn't immediately return a call seeking comment, nor did spokeswoman Renee Brotherton.
Job Cuts?
Under the offer, Flextronics will limit the proportion of Solectron's outstanding stock that will be converted into its shares to between 50 percent and 70 percent, the companies said.
Solectron said in March it may eliminate as many as 1,500 jobs as it closes some factory space in North America and Western Europe.
Last year, Flextronics bought International DisplayWorks Inc. to add liquid crystal displays for cell phones and portable MP3 music players. In August, Flextronics reached an agreement to produce digital cameras for Eastman Kodak Co.
Citigroup Inc. is the financial adviser for Flextronics, while Goldman Sachs Group Inc. advises Solectron. Citigroup also agreed to provide Flextronics with a $2.5 billion, seven-year loan to help finance the purchase.
Posted by staff at June 4, 2007 01:24 PM