Sanmina Agrees to Buy Rival SCI Systems
Sanmina Corp., a contract manufacturer of telecommunications equipment and computers marketed by other companies, agreed to buy rival SCI Systems Inc. for about $4.5 billion in stock as competition intensifies for fewer sales.
Sanmina will swap 1.36 shares for each SCI share, and will assume about $1.5 billion in SCI debt, the companies said Monday.
Shares of San Jose-based Sanmina fell $2.38, or 11%, to $19.76 on Nasdaq. Huntsville, Ala.-based SCI rose $1.28, or 5.1%, to $26.45 on the New York Stock Exchange. SCI’s shares have fallen 49% in the last year and Sanmina’s have dropped 59%.
Demand has fallen for electronics such as networking gear, cell phones and personal computers. SCI’s focus on making PCs, which were 30% of sales in the quarter ended March 25, has cut profit.
Sanmina, led by Chief Executive Jure Sola, has stuck to more profitable products, such as telecommunications equipment, relying less on lower-margin devices.
Sola, a 50-year-old Croatia native, co-founded Sanmina in 1980. SCI, a pioneer in contract manufacturing in the 1970s, was founded in 1961. SCI helped to build NASA’s Saturn moon rockets and made circuit boards for IBM Corp.’s first PCs.
Sanmina has a market value of about $6.6 billion and SCI’s is about $4 billion, but SCI’s fiscal 2000 sales of $8.3 billion were more than double Sanmina’s $3.9 billion.
The new company will have sales of $14 billion a year and 100 plants in more than 20 countries. Sales would be about the same as those last year by Solectron Corp., the biggest contract builder.
About 47% of sales at the new company will come from communications-related gear, 35% from computer-related equipment, 13% from industrial and medical instruments and 5% from multimedia devices such as television set-top boxes, executives said.
The acquisition will add to Sanmina’s earnings this fiscal year and produce cost savings of about $100 million to $150 million, the two companies said.
Companies such as Nokia, Motorola Inc. and Nortel Networks Corp. are turning more to contract manufacturers to save money. Contract manufacturers can build devices more cheaply because they buy parts in bulk and do much of their production in countries with cheaper labor.
