Alison Tudor and Jessica Hall
TOKYO/PHILADELPHIA: An affiliate of U.S. private equity firm Kohlberg Kravis Roberts & Co. has agreed to buy the software development unit of Flextronics International Ltd. for about $900 million, making it the biggest leveraged buyout in India.
The Singapore-based Flextronics, which makes products such as Microsoft Corp. Xbox 360 video game consoles, Motorola Inc. mobile phones and Dell Inc. computers, said it would receive more than $600 million in cash and a $250 million face-value note for the asset.
The deal marks KKR's first purchase in India and second investment in Asia, following its 2005 investment in Avago Technologies, the former semiconductor-products group of Agilent Technologies Inc.
Flextronics, the world's biggest electronics contract manufacturer, will retain a 15 percent stake in the business.
The acquisition was the largest leveraged buyout and technology investment in India to date, according to data providers Venture Intelligence India.
One of the nearest deals to approach this size was the sale of GE Capital International Services to a consortium of private equity firms in 2004 for about $500 million, it added.
Flextronics, which has factories across Asia, said the business would operate as an independent company under an undetermined name. The existing management team will continue to lead the software business.
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After the closing of the deal, which is expected in the summer of 2006, Flextronics said it would also have generated more than $1 billion in cash through the divestitures of software, network services and semiconductor businesses.
Flextronics said it expected to post an after-tax gain on the sale of about $175 million and added that the deal was likely to slightly boost its fiscal 2007 earnings per share.
The company said it might use the proceeds to support the growth of other its operations, such as design, manufacturing components and logistics. It also may reduce debt or repurchase stock.
Flextronics said its board had authorised the repurchase of up to $250 million of its outstanding ordinary shares.
KKR's financing is fully underwritten. Citigroup and Merrill Lynch are acting as joint bookrunners and joint lead arrangers for the acquisition financing. They also acted as financial advisers to KKR.
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