Summary
Flextronics International Ltd. (FLEX) has filed an 8-K to announce a significant divestiture of its software development and solutions business. On April 13, 2006, the company entered into a Share Purchase Agreement to sell certain subsidiaries, including its India-based software arm, to Software Development Group (SDG), an affiliate of Kohlberg Kravis Roberts & Co. (KKR). This transaction represents a strategic shift for Flextronics, moving away from its software operations to focus on its core manufacturing services. The deal is structured to provide Flextronics with substantial cash proceeds, a retained equity stake in the divested business, and a long-term promissory note. The sale is subject to customary closing conditions, including regulatory approvals and financing. The involvement of KKR and the substantial financial components of the deal, including a fairness opinion from Merrill Lynch & Co. and Banc of America Securities LLC, underscore the material nature of this divestiture for investors.
Key Highlights
- 1Flextronics is divesting its software development and solutions business, including its India-based subsidiary, Flextronics Software Systems Limited.
- 2The buyer is Software Development Group (SDG), an affiliate of Kohlberg Kravis Roberts & Co. (KKR).
- 3Flextronics will retain a 15% ownership interest in SDG post-transaction.
- 4The transaction includes cash consideration of approximately $650 million (subject to adjustment), retained cash balances in excess of $10 million, and an 8-year, $250 million promissory note with a 10.5% PIK interest rate.
- 5The purchase price is subject to a customary net working capital adjustment.
- 6Key conditions for closing include antitrust approvals and SDG's receipt of debt financing.
- 7Merrill Lynch & Co. and Banc of America Securities LLC provided fairness opinions to Flextronics' Board of Directors.