Flextronics to buy Solectron for US$3.6b

PUBLISHED : Tuesday, 05 June, 2007, 12:00am
UPDATED : Tuesday, 05 June, 2007, 12:00am

Singapore firm expands range in profit hunt

Singapore-based Flextronics International will buy smaller US rival Solectron Corp for about US$3.6 billion to expand in the market for electronics manufacturing for companies such as mobile-telephone makers.

Shareholders of Solectron could choose to receive 0.345 share of Flextronics or US$3.89 in cash for each Solectron share, the companies said yesterday.

The cash offer is 15 per cent higher than the closing price of Solectron shares on Friday.

Citigroup Global Markets has committed a US$2.5 billion seven-year senior unsecured term loan to fund the cash portion of the acquisition, including the refinancing of Solectron's debt if needed, according to Flextronics.

Flextronics makes mobile telephones for Sony Ericsson Mobile Communications and the Xbox 360 game console for Microsoft Corp, and competes with Celestica and Taiwan's Hon Hai Precision Industry.

The Solectron deal will add Cisco Systems and Sun Microsystems to its list of clients. Flextronics has expanded its product range, cut jobs and moved production to lower-cost countries such as India to improve profitability.

'Solectron's strength in the high-end computing and telecoms segments will be an invaluable addition,' Flextronics chief executive Mike McNamara said.

'By joining forces, we expect the increased scale will enable us to extend our market segment, realise significant cost savings, and better serve our customers, employees and shareholders,' he added.

The acquisition, pending approval from both companies' shareholders and regulators, was scheduled to be completed by the end of this year, Flextronics said.

The combined company would have more than US$30 billion in annual sales and about 200,000 employees, Flextronics said.

The combination will generate at least US$200 million in after-tax cost savings in 18 to 24 months after the transaction is completed.

The deal will also boost Flextronics' earnings per share by at least 15 per cent.

Flextronics reported fiscal fourth-quarter profit tripled to US$121 million as sales gained 32 per cent.

In March, Solectron said it might eliminate as many as 1,500 jobs as it closed some factory space in North America and western Europe.

Last year, Flextronics bought International DisplayWorks to add liquid-crystal displays for mobile telephones and portable MP3 music players.

In August, Flextronics reached an agreement to produce digital cameras for Eastman Kodak.

Solectron will nominate two people to the board of the combined company, subject to approval by Flextronics.

Citigroup was the financial adviser for Flextronics.

Goldman Sachs Group advised Solectron.

Bloomberg, Associated Press

Market expansion
The deal will boost Flextronics' earnings per share by 15 per cent

Annual sales of the combined
company created after Flextronics-Solectron merger, in US$