Some speculations on SJ ECM company purchase.
Thought I'd throw some ideas out on the thread. The ECM company purchase by Flextronics seems to be larger than I originally estimated. The ECM company appears to be doing about $100M now on one shift and Flextronics expects to go to three shifts and get perhaps $300M. This could contribute as much as $300M to annual revenues for the 1999 fiscal year starting April 1. So my previous estimate of Flextronics revenues for this year is too low, and will need to be revised upward (say $1700M for 98 calendar year and possibly $1950M for 99 fiscal year).
The terms of the deal haven't been revealed yet, but almost certainly will involve some equity (dilution) and perhaps some debt assumption. If we throw out a number like one time sales (PSR=1.0) for the acquisition cost, then Flex needs to come up with about a $100M in equity, cash, and debt assumption.
Now to speculate: if it was an all equity deal at $34 per share, they would issue almost 3M shares. This would dilute the current earnings estimate from $2.40 to $2.11. But assuming the operating margin on the business is the same as current business, 5.2%, then the acquistion would add about $13.3M in after-tax earnings, which boosts the EPS by almost 60 cents to $2.66 on diluted basis (24M shares out). So the deal would be solidly accretive, and add about 26 cents to FY99 earnings.
Now this is all speculative at this point, but from this we could see what drove Marks to make this deal. If Flex does have new business to boost the plant to $300M per year, then the deal makes a lot of sense, and Marks could easily pay up a bit to close the deal.
I haven't been able to ID the target yet.
Paul |
