To build its manufacturing presence in Asia, Solectron Corp. said today it will purchase all outstanding common shares of Singapore-based NatSteel Electronics Ltd. in a cash deal worth $2.4 billion.
Solectron, a Milpitas, Calif., contract electronics manufacturer, is offering to buy NatSteel's 534 million outstanding fully diluted shares for $4.53 per share. Major shareholders of NatSteel, which is the world's sixth largest CEM, already have given Solectron 43% of the company's outstanding common shares. The latest transaction is subject to several conditions, including the approval of NatSteel shareholders.
"The trend of OEMs to outsource their manufacturing and supply-chain needs is now emerging in the Asia/Pacific region," said Koichi Nishimura, Solectron's chairman, president, and chief executive, in a statement. "By acquiring NatSteel, we at Solectron would further strengthen our presence in this region, expand our capacity and solidify our leadership role in bringing the benefits of outsourcing to companies in Asia."
Reports surfaced two weeks ago that Solectron was interested in broadening its manufacturing capacity, and analysts said NatSteel's parent company was looking to sell the under-performing operation. NatSteel, which is 33% owned by the NEL Group, counts on Apple Computer Inc. for 53% of its revenue. Other NatSteel shareholders include top members of the company's management staff and Temasek Capital.
Solectron hopes to complete the transaction by the end of December and expects to finance a portion of the deal through a public offering of common stock and liquid yield option notes.
In addition to Singapore, NatSteel has operations in San Jose; Shenzhen, China; Budapest, Hungary; Batam, Indonesia; Penang, Malaysia; Guadalajara, Mexico; and Bangkok. The CEM, which has 12,000 employees, offers box-building services along with design, prototyping, logistics and test programs.
Industry observers noticed a change in NatSteel's business methods in late September when the company backed out of a deal to purchase a Chicago plant from 3Com Corp. that eventually was snapped up by Manufacturers' Services Ltd., Concord, Mass. Last month, Chay Yee Meng, NatSteel's chief financial officer, said the company expected its 2000 revenue to be 15% lower than the previous anticipated target of $2.8 billion due to weak PC sales.
"The company is ramping up production for networking/communications customers to offset weak demand from PC-sector customers," said Sum Tze Tsien, an analyst at S.G. Cowen Securities Corp. in Singapore. "NatSteel faces risks because of its high financial and operational leverage and low earning visibility."
Chester Lin, NatSteel's chief executive, sees a bright future for the company with Solectron.
"We will join forces to better serve our customers globally," said Lin in a statement. "There will be no change to the management and staff of NatSteel. We are confident that together we will be able to share our knowledge and resources across the world and make NatSteel an even stronger organization ready to meet new challenges ahead."