Electronics equipment maker Flextronics International Ltd. is buying Solectron Corp. in a $3.6 billion deal that will create a single firm with more than $30 billion in annual sales.
The move will consolidate the industry and boost Flextronics' exposure to more technical product lines and customers.
``The pieces that Solectron gives us, give us much better capability to go after high-end, complex products,'' said Flextronics Chief Executive Officer Mike McNamara in a June 5 conference call.
If the deal comes together as expected by the end of 2007, Flextronics will oversee a workforce of 200,000 employees - up from its current staff of 113,000 - in 35 countries.
The firm's products include injection molded electronic equipment used in cell phones, printers, computers and video games. Flextronics' current product mix leans toward parts for high-volume, lower-cost consumer products, with a customer list that includes Casio Computer Co. Ltd., Dell Computer Corp., Hewlett-Packard Co. and Sony Ericsson.
Solectron's parts typically end up in more expensive equipment, McNamara said. While Flextronics makes parts for Hewlett-Packard printers, Solectron's products go into servers and other equipment for the same firm.
But Solectron needs more strength in complete production, and is in the midst of a management transition.
``Flextronics' strength in vertical integration ... complements Solectron's needs for such capabilities,'' McNamara said. ``Solectron's high-end computing ... complements our needs in cell phones and consumer electronics.''
Both Singapore-based Flextronics and Solectron of Milpitas, Calif., are publicly traded. Flextronics has offered Solectron shareholders an option of 0.345 share of Flextronics per share of Solectron, or a cash payment of $3.89 per share.
McNamara said Flextronics has been organizing itself for acquisitions for more than a year, believing the electronics manufacturing industry has too much capacity.
``The need for industry consolidation for Flextronics has always been a question of when, not if,'' he said. ``The [electronic manufacturing services] industry is very fragmented, with too many companies with excess capacity.''
Solectron was the perfect target for Flextronics, he said, while Paul Tufano, interim chief executive for Solectron, said Flextronics' proven track record makes it an attractive buyer for both customers and employees.