Shares of Montreal-based C-MAC Industries (TSE:CMS)(NYSE:EMS)soared 17 per cent Thursday on news the contract manufacturer is being bought by California's Solectron Corp. (NYSE:SLR)in a $4.1 billion all-stock deal.
C-MAC shares ended the day up $5.80 to $40.60 in heavy trading of more than 14 million shares.
The merger is just the latest example of companies in the electronic manufacturing services (EMS) field trying to achieve economies of scale through consolidation.
Last month, Sanmina Corp agreed to buy SCI Systems for about $3.9 billion US in stock.
Thursday's Solectron/C-MAC deal is aimed at creating a diversified designer and manufacturer of integrated electronic products.
Solectron will issue 1.755 shares of Solectron common stock in exchange for each C-MAC common share outstanding.
Based on Solectron's Wednesday closing price of $17.20 US, the transaction is valued at $30.19 US, or $46.29, per share of C-MAC common stock, or about $2.7 billion US, including the assumption of debt.
Shares of Solectron closed Thursday at $15.49 US, down $1.71 US.
C-MAC's Canadian shareholders may choose to receive common shares of Solectron or in a Solectron Canadian subsidiary, exchangeable into Solectron common shares.
The boards of directors of both companies have approved the transaction. The deal is expected to be completed by the end of 2001.
"C-MAC's systems-solutions expertise helps Solectron meet a key long-range initiative and further strengthens our industry-leading technology, manufacturing and supply-chain services," Koichi Nishimura, Solectron chairman, president and chief executive officer, said in a release.
"In addition, the transaction provides us with access to the automotive electronics industry, which we have specifically targeted for growth," Nishimura said.
C-MAC chairman, president and CEO Dennis Wood will chair a committee of Solectron's board focused integration and corporate strategy, and will oversee the integration of the two organizations.
Solectron will also add a second current C-MAC board member to join the Solectron's board.
As part of the merger announcement, C-MAC said "order visibility" from its customers in the communications market is still limited and difficult economic conditions persist.
The company said it anticipates that results for the second half of 2001 should be comparable to results for the first half. C-MAC expects revenue for the third quarter to exceed $575 million and earnings before goodwill amortization per share diluted to be approximately 10 to 15 cents.
C-MAC employs 9,000 people at 52 sites in North America, Europe and Asia. It is Nortel's biggest customer.