Flextronics buys 55% of Hughes Software

At Rs 1,023 cr, acquisition biggest in sector.

The Singapore-based contract electronics manufacturer Flextronics Design Services today said it would buy Hughes Network System's 55 per cent stake in telecom software solutions provider Hughes Software Systems for Rs 1,023.78 crore ($ 226 million).

Flextronics is set to pay Rs 547 per share, or a 5 per cent premium over Hughes' closing price of Rs 520 on Monday. Hughes Network Systems is a wholly owned subsidiary of DirecTV, in which Rupert Murdoch's Fox Entertainment Group holds a 34 per cent stake.

The Securities and Exchange Board of India takeover regulations require Flextronics to make an open offer for an additional 20 per cent stake, which will cost another Rs 371.46 crore ($ 82 million), taking the total acquisition cost to Rs 1,395 crore. The open offer will be made around June 11.

The Flextronics-Hughes Software deal is bigger than the Rs 750-800 crore takeover of Daksh by IBM.

Announcing the acquisition, Ash Bhardwaj, president of Flextronics Design Services, said, "This deal will help us to sell a more extensive set of products and services to our clients."

Hughes Software had a revenue of Rs 360.4 crore and a net income of Rs 76.9 crore for the year-ended March 2004. "Revenue is expected to grow at 25 per cent and profit will grow at 28-32 per cent," said Arun Kumar, President, Hughes Software Services.

The takeover by Flextronics, with revenues of $14.5 billion, will provide Hughes Software employees growth opportunities on a global scale.

The company will remain a public limited company even after Flextronics' acquisition of a 55 per cent stake. The transaction is expected to be concluded by October subject to regulatory approvals.

Flextronics clients include handset makers Sony-Ericsson and Siemens, and PC maker Hewlett-Packard.

"This partnership should offer significant opportunities to cross sell our respective products and services to a very complementary telecom customer base," Flextronics Chief Executive Michael Marks said in the statement.

The Flextronics buy follows in the footsteps of other multinationals in India, where both Citigroup and IBM bought leading outsourcing firms two months ago.

An eventual sale by DirecTV had been widely expected. While Flextronics was advised by Citigroup, DirecTV was advised by DSP Merrill Lynch.