Flextronics sells software unit for US$900 million

Flextronics International, one of the world's top contract electronics manufacturers, said Sunday it agreed to sell its software business to an affiliate of buyout firm Kohlberg Kravis Roberts & Co. in a deal valued at US$900 million.

The deal is a sign of heated competition in the global contract electronics business. Flextronics lost its crown as the largest contract IT producer in the world a few years ago to Taiwan's Hon Hai Precision Industry and has been clambering to catch up ever since.

Flextronics, which manufactures IT products for global companies, such as Microsoft's Xbox 360 game console, has been selling off divisions in recent years in an effort to focus on its electronics manufacturing services (EMS) business. Last September, it sold its semiconductor and network services operations.

"This transaction is the continuation of our previously announced strategy of focusing our efforts and resources on the reacceleration of significant growth opportunities in our core EMS business," said Michael McNamara, chief executive officer of Flextronics, in a statement.

Once this deal has been finalized, the company will have generated over US$1 billion in cash proceeds from the sale of the three businesses, according to the statement.

Flextronics expects to receive over US$600 million in cash from the sale of the software business, and will hold a US$250 million face value note that matures in eight years as part of the deal. It will also retain a 15 percent stake in the software business, which will operate as an independent company, Flextronics said.

The buyer is tied to one of the most famous private equity firms in the U.S. Kohlberg Kravis Roberts & Co. has been part of or led a number of high profile corporate buyouts, including the high profile US$31.4 billion purchase of U.S. snack maker RJR Nabisco in 1989, the largest leveraged buyout in history at the time. RJR has since been renamed Nabisco Group Holdings.

The deal for Flextronics' software business is expected to close this summer, depending on regulatory approval and other conditions.

The bulk of the software business is based in India, but it has offices worldwide, according to Valerie Kurniawan, a spokeswoman for Flextronics in Singapore. In all, the unit has 6,100 employees.

"There are no plans to lay off anyone or disrupt the operations in any way," she said.

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