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Flextronics to buy 55 pc stake in Hughes Soft for $226 m — Open offer for another 20 pc

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Mr Arun Kumar (left), President & MD, Hughes Software Systems, with Mr Ash Bhardwaj, President, Flextronics (Design Services), at a press conference in the Capital on Tuesday. - Kamal Narang

New Delhi , June 8

THE Singapore-based contract electronics manufacturer Flextronics said on Tuesday it would buy a majority 55 per cent stake in Hughes Software Systems (HSS) for $226 million (about Rs 1,017 cr), claimed to be the biggest acquisition deal in the Indian IT space.

The all-cash deal would be completed by October. Flextronics would pay Rs 547 per share, 5 per cent premium over Hughes Software's closing price on Monday, to buy the shares held by DirecTV, a company controlled by News Corp's Fox Entertainment.

An open offer for an additional 20 per cent equity would be made in the next four days as per the Securities and Exchange Board of India norms. ``For the open offer, we may have to shell out as much as $82 million, which could take the size of the entire deal to $308 million,'' according to Flextronics President (Design Services), Mr Ash Bhardwaj.

The present management of Hughes Software and its name would be retained after the company becomes a subsidiary of Flextronics. The Indian software company would continue to focus on the telecom vertical and would not be delisted from the Indian bourses, Mr Bhardwaj said, adding that the only change would be on the board, where Flextronics would get its due representation.

Mr Bhardwaj said that the acquisition of Hughes Software would make Flextronics perhaps the only fully integrated solutions provider in the world. ``Electronics companies typically outsource component manufacturing, assembly services and design services and logistics. We had expertise in all these but were lacking on the software side. The acquisition of HSS has completed our range of offerings and will take us to the next level,'' Mr Bhardwaj said.

Asked if Hughes Network Systems, the DirecTV entity that held Hughes Software, would continue to be one of the largest clients for the company, the HSS President and Managing Director, Mr Arun Kumar, said: ``We have got an assurance that they will remain our major customer.''

Under the new parent, Hughes Software also hopes to get into new service lines. ``Our focus has been on telecom and although that would continue, Flextronics will help us enter new service lines where we have been aspiring to reach,'' Mr Kumar said.

The promoters of HSS, Hughes Network Services, had put their stake on the block as it did not gel with their core business of entertainment. There was a lot of speculation on who would pick up the stake.

Flextronics was advised by Citigroup on the deal. DSP Merrill Lynch acted as the advisor for DirecTV.

A senior DSP Merril Lynch executive said that it was a "hotly contested deal" but ultimately, it has turned out to be a win-win situation for all the parties involved.

The acquisition will strengthen Hughes Software and its shareholders will derive greater value. ``We believe that not many people will tender their shares during the open offer. And even Flextronics would not be too keen to pick up additional equity over the 55 per cent it has already got,'' the executive said.

With India's outsourcing model well-recognised, major service firms across the world are looking at merger and acquisition opportunities.

``There will be a lot of action in the coming months,'' he said, but did not share information on any deals being worked out.

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