Singapore's Flextronics buys smaller rival for $3.6b

Singapore-based Flextronics International, the world's No. 2 contract electronics maker, is buying smaller rival Solectron for $3.6 billion in cash and stock, an Associated Press report said.

The Associated Press report said the takeover is fueled by fierce global competition that is driving down prices and squeezing already razor-thin profit margins, according to analysts.

The report also quoted Flextronics as saying that Solectron investors will have two options for converting their shares, either a cash payment of $3.89 per share or 0.3450 shares of Flextronics for each Solectron share, which is a 20% premium.

No less than 50% and no more than 70% of Solectron's stock will be converted into Flextronics stock, the companies said in a joint statement before the markets opened.

Flextronics said it expects to identify some $200 million in cost-savings from the acquisition, which will boost earnings per share by about 15% once the two companies are fully integrated, which could take up to two years.

Solectron will get to nominate two people, who need to be approved by Flextronics, to the board of directors of the combined company, the Associated Press report further said.

The acquisition is expected to close by the end of this calendar year.

Both companies make a variety of electronic devices for companies looking to cut costs by outsourcing some of their manufacturing duties. Some of Flextronics' products include cell phone handsets, switches and routers for directing data over corporate networks, and Microsoft's Xbox videogame console, the report said.