Solectron to Buy C-MAC for $2.7B

	Koichi Nishimura, Solectron chairman, president and CEO

The contracting contraction has begun and with it is coming a new world of contract manufacturing superpowers.

Last week's agreement for contract manufacturing leader Solectron Corp. of Milpitas, Calif., to acquire the smaller but more vertically integrated C-MAC Industries Inc. of Montreal in a $2.7 billion deal comes on the heels of Sanmina Corp. of San Jose agreeing to buy Huntsville, Ala.-based SCI Systems Inc. for $6 billion.

More blockbuster acquisition moves among leading contract manufacturers are expected as the electronics industry increasingly embraces the outsourcing model and the strongest contractors bolster their prowess and efficiencies. When the Sanmina-SCI deal surfaced a few weeks ago, many industry analysts and participants predicted more such acquisition moves were likely, as a handful of more vertically integrated, globally positioned megacontractors emerge to dominate the electronic manufacturing services (EMS) world (see ENews, July 23). Who would be acquired next, many wondered? And now we know.

Solectron (nyse: SLR) and C-MAC (nyse: EMS) have reached a definitive agreement under which Solectron will issue 1.755 shares of Solectron common stock in exchange for each C-MAC common share outstanding. Based on Solectron stock's Wednesday closing price of $17.20, the transaction is valued at $30.19 per share of C-MAC common stock, or about $2.7 billion, including the assumption of debt. The boards of both companies have already approved the transaction. Completion, subject to stockholder and other approvals, is expected by the end of the year.

"We believe the addition of C-MAC's electromechanical/enclosure capabilities will position Solectron well to provide full-system assembly solutions, one of the next major outsourcing waves for the EMS industry," said Merrill Lynch analyst Jerry Labowitz. Communications customers will benefit, for example, with the combined company offering high-volume PCB assembly and high-complexity electromechanical assembly/enclosure production.

"We view this acquisition favorably as it furthers Solectron's vertical integration strategy, broadens the company's manufacturing capabilities (e.g., microcircuits, enclosures, backplanes, etc.) and presents new business opportunities in markets such as the automotive segment," Labowitz said.

The deal, according to Koichi Nishimura, Solectron chairman, president and chief executive officer, "is another significant step along our strategic path of providing the capabilities our customers need to outrun their competition. C-MAC's systems solutions expertise helps Solectron meet a key long-range initiative and further strengthens our industry-leading technology, manufacturing and supply-chain services. In addition, the transaction provides us with access to the automotive electronics industry, which we have specifically targeted for growth."

The transaction also expands Solectron's presence in Canada and elsewhere. C-MAC has facilities in seven cities in Quebec, Manitoba and Ontario. Solectron has facilities in Calgary, Alberta and Ontario.

Also last week, Solectron said it expects fiscal 2001 fourth-quarter sales of $3 billion to $3.5 billion and fiscal 2002 sales of $16 billion to $18.5 billion. C-MAC annual sales are reportedly in the $2 billion range.

Dennis Wood, chairman, president and CEO of C-MAC, will chair a committee of Solectron's board focused on selective vertical integration and corporate strategy and will oversee the integration of the two organizations. In addition to Wood, Solectron plans to add a second current C-MAC board member to its board.