Flextronics to Acquire Solectron for $3.6B, 15% - 20% Premium

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Includes: FLEX, SLR
by: Steven Towns

Singapore-based Flextronics International, a contract manufacturer of electronic devices, has agreed to acquire Solectron, its California-based smaller rival in a deal valued at $3.6 billion. Subject to certain conditions, Solectron shareholders can receive 0.345 shares of Flextronics, equal to a 20% premium over Solectron's Friday close of $3.37, or they can receive $3.89 in cash, representing a 15% premium. The transaction is expected to close this year, pending shareholder and regulatory approvals. Solectron will become a wholly-owned subsidiary of Flextronics, while owning 20% - 26% of Flexronics' shares. The combined entity will have more than 200,000 employees and $30b in annual sales. Realization of full synergy potential is expected to take up to 18 - 24 months, at which point annual after-tax cost savings of $200m are forecast. Flextronics' CFO expects by that time the deal will be 15% accretive to EPS. Shares of Flextronics are unchanged at $11.70 in thin pre-market trading. Solectron was last trading at $3.84 (+14%) on light volume of 91,200.

Sources: Solectron-SLR-chart-06-01-07 Flextronics-FLEX-chart-06-01-07 Press release, MarketWatch
Commentary: Contract Electronics Manufacturing: Tough Place to Make MoneySolectron Misses Estimates; Shares Rise On Strong GuidanceJim Cramer's Take on Flextronics
Stocks/ETFs to watch: Flextronics International Ltd. (NASDAQ:FLEX), Solectron Corp. (SLR)
Conference call transcripts: Flextronics F4Q07

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