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Celestica Agrees to Buy Omni Industries for $890 Mln (Update4)
By Linus Chua, Chan Sue Ling and Christina Soon
Singapore, June 15 (Bloomberg) -- Celestica Inc., the third- largest maker of electronics parts on contract, agreed to buy Singapore rival Omni Industries Ltd. for $890 million, doubling its manufacturing base in Asia where labor is cheaper.
The Toronto-based company will give Omni shareholders 0.045 Celestica share for each Omni share, valuing them at $1.92 or 12 percent more than when they last traded. Celestica is also making a cash offer of S$4.25 ($2.4) on the condition that only about half of the total compensation is in cash.
Celestica is the third North American electronics parts maker to buy a Singapore manufacturer in the past year, following acquisitions by bigger rivals Solectron Corp. and Flextronics International Ltd. A company could save between 20 percent to 60 percent in costs by moving production from the U.S. to Asia, estimates Credit Suisse First Boston.
``Celestica cannot compete effectively if they don't have operations in Asia,'' said Tan Choon Hoe, who helps manage about $1 billion in Asian investments at AIB Govett (Asia) Ltd., including shares of Omni. ``The cost differential in the U.S. and in Asia is so great.''
Omni shares rose 52 cents, or 17 percent, to S$3.64, their biggest one-day gain in more than two-and-a-half years. Celestica shares fell $2.16 to $40.44 in early U.S. trading. They had fallen 21 percent this year.
The purchase gives Celestica factories in Malaysia, Singapore, Indonesia and Thailand. Omni also has plants in the U.S. and Mexico. Omni has a total of 9,000 workers.
``The acquisition of Omni Industries significantly enhances Celestica's presence in Asia,'' Eugene Polistuk, Celestica's chief executive, said in a statement.
Omni's key customers include Hewlett-Packard Co., the biggest maker of printers, Motorola Inc., the second-largest cellular phone maker, and Dell Computer Corp., one of the biggest makers of personal computers.
``Manufacturers are being told by customers to shift their operations to Asia, particularly China,'' said David Toh, an analyst at ING Barings in Singapore. ``There's not much overlap geographically with Omni's main presence in Asia.''
Wuthelam Industries (S) Pte., which owns a quarter of Omni, and key members of Omni's management, agreed to sell 32 percent of the company to Celestica, though they haven't chosen either the cash or stock option.
While analysts say the offer as a whole is attractive, they worry about how the cash offer would be split up if more shareholders chose that option because Celestica is limiting the total cash payout to S$860 million. Assuming all shareholders opted for cash, Omni shareholders would end up with S$2.17 in cash and the rest in Celestica shares.
``The deal is good for Omni shareholders but the uncertainty is how much cash each shareholder gets,'' said Chua Wee Thia, an analyst at Vickers Ballas Investment Research Pte. in Singapore.
The transaction is expected to close in the early part of the fourth quarter.
Omni has been the subject of takeover speculation before.
When Solectron, the biggest maker of electronics parts on contract, agreed to buy Singapore rival NatSteel Electronics Ltd. in October for $2.4 billion, Omni's shares rose 17 percent in the following two weeks. The stock had gained largely on speculation the company would be acquired by Celestica.
In August, Flextronics International Ltd., the second-largest contract maker of electronics, paid $640 million for Singapore- based JIT Holdings Ltd. NatSteel Electronics and JIT are Omni's two largest rivals.
Celestica has bought 13 companies, plants and divisions since 1998. In a U.S. Securities and Exchange Commission filing last month, the company said it's in talks with several companies to expand manufacturing globally.
Last month, Celestica sold 12 million shares at $58.78 each, raising $705 million for acquisitions and other purposes. The company has about $1.2 billion in cash, plus unused credit of as much as $500 million.
In the past month, Celestica agreed to spend C$265 million ($174 million) to buy Canadian rival Primetech Electronics Inc. It also decided to buy a communications-equipment factory from Sagem SA and to supply the French manufacturer with $500 million worth of gear in three years.
Morgan Stanley Dean Witter represented Omni while Credit Suisse First Boston advised Celestica. ANZ Singapore Pte. will advise Omni's independent directors.