Financial Daily from THE HINDU group of publications
Tuesday, Apr 18, 2006
Financial Daily from THE HINDU group of publications Tuesday, Apr 18, 2006 |
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Info-Tech - Mergers & Acquisitions Flextronics to sell 85 pc stake in software unit to KKR Our Bureau
Flexible times Flextronics would retain 15 per cent equity stake in the business. It expects the after-tax gain on the transaction to be about $175 million.
New Delhi , April 17 In the biggest private equity buyout deal in the domestic IT services sector, Flextronics International on Monday decided to sell 85 per cent stake in its software development and solutions business — including Flextronics Software Systems and Frog Design — to an affiliate of US-based private equity giant Kohlberg Kravis Roberts and Co (KKR). The deal involves over $600 million in cash consideration and $250 million face value note with a 10.5 per cent paid-in-kind interest coupon, which matures in eight years. The transaction has pegged the enterprise valuation of the entire software business at $900 million. Flextronics would retain 15 per cent equity stake in the business, which would operate as an independent software development and solutions company. Flextronics expects the after tax gain on the sale transaction to be about $175 million. "The transaction is the continuation of our previously announced strategy of focusing our efforts and resources on the re-acceleration of growth opportunities in core Electronics Manufacturing Services (EMS) business which includes design, vertically integrated manufacturing services, components and logistics," Flextronics said.
Cash proceeds
"By monetising the non-core assets at substantial gains over carrying values, Flextronics will have generated cash proceeds in excess of $1 billion through the divestitures of our software, network services and semiconductor businesses. In addition, we have retained ownership interests in both the software and network services business, which should provide additional cash and potential future upside when monetized," the company added. The software business being divested includes a gamut of companies — Futuresoft, Emuzed, AUCT, DeccaNet, Azisa, and Avnisoft, all of which are in the process of being merged into FSS. The software operations also include Frog Design, a strategic design consultancy firm in the US. All these companies would merge into a single entity, and take on a new name.
Company head
Flextronics' Software Development and Solutions Business CEO, Mr Ash Bhardwaj, and the company's President, Mr Arun Kumar, would continue to head the new company. The software business now has 6,100 employees, 85 per cent of them in centres in India. The Indian unit was formerly Hughes Software Systems, based in New Delhi, before Flextronics acquired it. Flextronics, which in June 2004 agreed to buy 55 per cent of Hughes for $226 million, renamed the company after increasing its stake. KKR is, perhaps, best known for $31.3 billion takeover of RJR Nabisco Inc in 1989.
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