KKR pays $900M for Flextronics India
By agencies | Tuesday, 18 April 2006, 07:00 Hrs
NEW DELHI: An affiliate of Kohlberg Kravis Roberts, the U.S. private equity firm, has agreed to buy the software business of India's Flextronics International for $900 million. In what would be India's biggest leveraged buyout, Singapore-based Flextronics said it would receive more than $600 million in cash and a $250 million face-value note for the asset. Several big-name U.S. companies outsource work to Flextronics, which makes Xbox 360 video game consoles for Microsoft, mobile phones of Motorola and personal computers for Dell. The deal marks KKR's first purchase in India and second investment in Asia, following its 2005 investment in Avago Technologies, the former semiconductor-products group of Agilent Technologies. Flextronics, the world's biggest electronics contract manufacturer, will retain a 15 percent stake in the business. The acquisition was the largest leveraged buyout and technology investment in India to date, according to data providers Venture Intelligence India. The deal eclipses the sale of GE Capital International Services to a consortium of private equity firms in 2004 for about $500 million. "This is good news for private equity in India. It shows large deals can get done and will attract other buy-out firms to the country," said Arun Natarajan at Venture Intelligence India. "However, we fully expect the volume of deals to continue to mainly come from smaller growth-oriented transactions." Mergers and acquisitions by private equity firms has been increasing across Asia, hitting $12.7 billion in the first three months of 2006, doubling from a year ago, according to data suppliers Dealogic. Indian companies had the third biggest slice of private equity financing in Asia, behind Chinese and Taiwanese firms. Including Monday's deal, Flextronics said it expects to generate more than $1 billion in cash through the divestitures of software, network services and semiconductor businesses. Flextronics expects to post an after-tax gain on the sale of about $175 million and said the deal was likely to slightly boost its fiscal 2007 earnings per share. The company said it might use the proceeds to support the growth of other its operations, such as design, manufacturing components and logistics. It also may reduce debt or repurchase stock. Flextronics, which has factories across Asia, said the business would operate as an independent company under an undetermined name. The existing management team will continue to lead the software business. Flextronics said its board had authorized the repurchase of up to $250 million of its outstanding ordinary shares.