DJ: Jabil Circuit Up 11% After Announcing Marconi Deal
(Rich - looks like we all got our wish. Peter)
By Elena Molinari
Of DOW JONES NEWSWIRES
NEW YORK -- In its just-announced deal with Marconi PLC (MONI), Jabil Circuit Inc. (JBL) has secured at least
three years of fast growth and reaffirmed its position as one of the top U.S. electronic equipment makers.
That was the Street's view Friday of the pact Jabil announced late Thursday, when it said it would buy five of
Marconi's manufacturing operations in the U.S., U.K., Italy and Germany for about $390 million and enter a
three-year product supply agreement to manufacture existing and new products for Marconi.
Jabil's stock gained as much as 22.5% on the news.
After hearing market watchers' comments - ranging from slightly bullish to enthusiastic - it was clear that the Street
had already forgotten about Jabil's disappointing November quarter, as well as fears that it might miss its May and
August expectations.
Analysts said that the company's projection of $4 billion in revenue from the manufacturing and repairing of
Marconi's products over three years is conservative.
"The estimate implies that Marconi will grow in the annual 20%-25% range over the next two years, but Marconi
has been growing faster than that," said Chris Whitmore, an analyst with Deutsche Bank.
The revenue will result from increased efficiency at the facilities, an analyst said.
"There is no incentive to efficiency now, no focus on supply chain management," said Chris Lippincott of
McDonald Investments. "After Jabil takes over, I expect inventory turns to increase from four to eight times, just
because Jabil is one of the top manufacturers now - this what they specialize in."
Jabil's shares were recently trading at $30.50, $2.75, or 10% higher, on volume of 4.6 million shares. The average
daily turnover is 3 million.
Marconi's American depositary shares were up 56 cents at $21.50.
In a Friday conference call, Jabil's management said it expected the Marconi deal to be two cents to three cents
accretive of fiscal 2002 earnings. The pact will be implemented by the middle of 2001, management said.
At the facilities acquired from Marconi, Jabil will manufacture optical transmission products as well as broadband
switching and access products, and it will focus on increasing capacity.
"But it will take productivity and efficiency improvements to realize a substantial increase in capacity levels", said
Tim Main, Jabil's president and chief executive.
According to Merrill Lynch & Co. analyst Jerry Labowitz, who reiterated his buy rating on the stock on Friday,
the deal represents "the largest acquisition and outsourcing agreement in Jabil's history and one of the five
largest transactions in the electronic manufacturing services industry."
But as Deutsche Bank's Whitmore said, it won't probably be the last of these agreements, as more optical
manufacturers are moving to outsourcing.
"This model allows electronic sellers to take their products to market faster at a cheaper rate," he said.
McDonald Investments' Lippincott said he didn't expect any implementation or integration difficulties to arise
from the pact, as up to 2,900 Marconi employees will progressively transfer to Jabil Circuit. Furthermore, he said,
"the deal is not going to upset Jabil's other major customers, such as Cisco Systems, Dell, Lucent and
Hewlett-Packard, as Jabil assured that secrecy will be paramount over everything."
-Elena Molinari, Dow Jones Newswires; 201-938-4047; elena.molinari@dowjones.com |
