Shareholders of Milpitas, Calif.-based Solectron will get $3.89 a share in cash or 0.345 Flextronic shares. Flextronics said it will issue at least half the deal's total compensation in stock and perhaps as much as 70%, depending on Solectron holders' decisions.
Singapore-based Flextronics said the agreement gives Solectron holders who select cash a 15% premium to Friday's closing price and those who select stock 20%.
"While some synergies will be achieved in the first 12 months after closing, it could take up to 18-24 months to fully integrate this acquisition and realize the full synergy potential, which we estimate to be at least $200 million after- tax," Flextronics said. "This should be at least 15% accretive to Flextronics's earnings per share ("EPS") once all of the synergies are realized. As the integration progresses and actual synergies are realized, we expect to raise our EPS expectations as the accretion occurs over the 18-24 month integration period. Although restructuring charges are expected to result from the integration of the acquisition, Flextronics expects to generate cash flow synergies well in excess of the cash portion of such restructuring charges."
While Flextronics will continue to evaluate alternative long-term financing arrangements, Citigroup Global Markets Inc. has committed to provide Flextronics with a $2.5 billion seven-year senior unsecured term loan to fund the cash requirements for this transaction (including the refinancing of Solectron's debt, if required). Following the acquisition, Solectron will become a wholly owned subsidiary of Flextronics, and Solectron shareholders will own approximately 20% to 26% of Flextronics's outstanding shares.