Flextronics’ plans for local subsidiary remain hush-hush

Newsroom 23/10/2007 | 15:25

Adrian Sabau, responsible for human resources at the company, said it had not yet made any official statement to the Romanian press, and that it was to soon for local representatives to comment. “I don't have the authority to speak about the possible restructuring of the local subsidiary or reveal other such information. We will prepare an official statement from the company,” Sabau said.
In Solectron's case, while company representatives are refraining from making any official statements on the future development of the local subsidiary, media reports say that the subsidiary is passing through a rebranding process, with all the Solectron symbols being replaced by those of Flextronics and all employees receiving information about the new owner of the plant in Timisoara with the corporate culture of Flextronics.
The transaction between the two companies was finalized at the end of September. At the beginning of October, the new manager of the Flextronics plant in Romania was named as Croatian Radenko Prnja, who formerly worked for Flextronics Croatia.
Solectron entered the Romanian market in 1998, with an investment of $150 million at that time in an electronic compound plant in Timisoara. In 2005 the company expanded its activity on the local market by opening a design and engineering center providing services for all its clients. Solectron Romania's turnover in 2006 was EUR 44 million.
The firm's financial results have been disappointing in the last few years, with EUR 2.1 million losses in 2006, and a registered loss of EUR 3.2 million in 2005, according to data from the National Trade Register Office. The data sent by Solectron to the Finance Ministry also shows that the number of company employees decreased from more than 3,300 in 2002 to a little more than 2,000 at the end of 2006, which could be explained by the intention of the company management to cut costs and losses.
On various occasions, trade union representatives such as Lucian Malea have complained about the working conditions at Solectron and the lack of attention paid by company management to these problems. According to him, the company has no real professional training programs, nor any motivational policy. Since the takeover by Flextronics, there are no signs yet that the situation is going to change, Malea said.
Headquartered in Singapore, the new owner of the company, Flextronics, had operations in 30 countries and had a turnover of more than $15 billion in 2006. Flextronics is an electronics manufacturing services (EMS) provider, delivering complete design, engineering and manufacturing services to automotive, computing, consumer digital, industrial, infrastructure, medical, and mobile original equipment manufacturers.
Mike McNamara, CEO of Flextronics, believes the acquisition will complete the current range of services provided by the company. “Solectron is an extremely important strategic addition to Flextronics and this combination transforms the landscape of our industry. By joining forces, we expect the increased scale will enable us to further extend our market segment reach and leverage an increased vertical integration opportunity, realize significant cost savings,” he said when announcing the takeover.
Company representatives say Flextronics will need about 24 months to fully integrate the new company in its structures.
McNamara added, “Over the last 18 months, we have reorganized our management structure to create the infrastructure required to effectively and efficiently add scale to our operations. As a result, we are well prepared to achieve the expected synergies by successfully integrating our new partner into our company.”
Operating in 35 countries, with a combined workforce of approximately 200,000 employees, including around 4,000 design engineers, the combined annual revenues of Flextronics and Solectron will exceed $30 billion across seven well diversified customer market segments and several vertical component divisions.
Referring to the transition period after the takeover, Thomas Smach, chief financial officer of Flextronics, said “While some synergies will be achieved in the first 12 months after closing, it could take up to 18-24 months to fully integrate this acquisition and realize the full synergy potential, which we estimate to be at least $200 million after tax.”
Under the terms of the final agreement between the two companies, shareholders of Solectron were to receive approximately $3.6 billion, based on the closing price of Flextronics ordinary shares on June 1. Each share of common stock of Solectron will be converted into the right to receive, at the choice of each Solectron shareholder, either 0.345 shares of Flextronics or a cash payment of $3.89 per share, subject to certain conditions.
As part of the agreement, Solectron has the right to nominate two individuals approved by Flextronics to the board of directors of the combined company. The acquisition is expected to close by the end of the calendar year 2007. Until the acquisition is completed, both firms will continue to operate their businesses independently, company representatives said.
Flextronics and Solectron ranked second and fifth, respectively, on a ranking of electronic manufacturing services (EMS) providers released last year by market research firm Gartner Inc. According to that ranking, the top EMS provider was Taiwan-based Foxconn, also known as Hon Hai.
The Flextronics-Solectron transaction is not the first one to include a Romanian subsidiary. Although this is not the case here, in the IT industry, there were numerous times when an international company was bought due to its Romanian subsidiary, according to declarations of local representatives of the involved companies.
At the end of 2005, beginning of 2006, Nokia took over Intellisync, for $430 million. “Intellisync was a world leader for software synchronizing solutions due to its research division in Cluj. Now this division is the brains of Nokia on the enterprise solutions segment,” Valentin Deac, engineering manager for Nokia Romania Enterprise Solutions, said at the time of the transaction.
Another example in this case is the takeover of the portfolio management and consulting firm based in New York, United Management Technologies (UMT), by Microsoft. The transaction was prompted by Microsoft's desire to purchase a software solution from the company, which was developed recently in UMT's Bucharest-based Romanian subsidiary. Key UMT executives and product development engineers joined the Microsoft Office project team in Redmont, while UMT's consulting arm became a separate Microsoft consulting group to mentor clients. The software developed by UMT Romania is a consulting application for project portfolio management which had no local clients. The application is used by large companies from the US and Western Europe, Catalin Olteanu, the former general manager of UMT Romania, said.

Roxana Mihul

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