New direction

New York, June 4 (Reuters): Contract electronics maker Flextronics International Ltd said on Monday that it would acquire rival Solectron Corp for $3.6 billion in cash and stock.

Under the deal, each Solectron share will be converted into the right to receive either 0.3450 Flextronics share or $3.89 cash, subject to certain conditions, Flextronics said.

The cash consideration represents a premium of 15 per cent over Solectron’s closing price on Friday, while the stock consideration represents a premium of about 20 per cent. Solectron shares traded at $3.83 in light pre-open trade on Monday, up from a Friday close at $3.37 on the New York Stock Exchange. Flextronics shares closed at $11.07 on the NYSE on Friday.

Following the acquisition, Solectron will become a wholly owned unit of Flextronics, and Solectron shareholders will own 20 per cent to 26 per cent of Flextronics’ outstanding shares. The combined company will have a workforce of about 200,000, including about 4,000 design engineers. Their combined annual revenue will exceed $30 billion.

Flextronics said the combined entity could cut costs by up to $200 million, although it could take as much as 24 months to integrate the companies.

“This should be at least 15 per cent accretive to Flextronics’ earnings per share once all of the synergies are realised,” Thomas Smach, chief financial officer of Flextronics, said in a statement.