|Celestica Upbeat On Deal Despite Lucent's Problems |
Updated: Tuesday, July 24, 2001 11:54 AM ET
TORONTO (Dow Jones)--Ongoing troubles at Lucent Technologies Inc. (LU, news, msgs) appeared to dampen the enthusiasm of most of the analysts participating in a conference call Tuesday about Celestica Inc.'s (CLS, news, msgs) purchase of some Lucent facilities.
As reported, Celestica, an electronics manufacturing services company, confirmed that it will enter a manufacturing agreement with Lucent worth up to $10 billion in revenue over five years. As part of the deal, Celestica will pay between $550 million and $650 million for Lucent's plants in Oklahoma City and Columbus, Ohio.
The transaction follows reports that Flextronics International Ltd. (FLEX, news, msgs) walked away from a deal for the same plants.
The market's response was also less than jubilant. In Toronto Tuesday, Celestica is off 44 Canadian cents to C$68.88 on about 266,000 shares. Lucent, which missed analysts' third-quarter expectations by a wide margin, announced 20,000 more job cuts and declined to give guidance for the next quarter, is down 17% in New York.
But Celestica executives assured analysts that the purchase, with a "premier telecom," was positive for the company.
Eugene Polistuk, chairman and chief executive of Celestica Inc. (CLS, news, msgs), boasted that the transaction was the largest the company has announced to date, adding that it will result in the expansion of its "already proven partnership" with Lucent Technologies Inc. (LU, news, msgs).
"The size and scope of this transaction recognizes the track record and trust that has been built up between the two companies," Polistuk told analysts. He said that Celestica will also benefit from an expansion of its communications portfolio, while also comfortably meeting financial criteria for acquisitions.
The deal, to close in the third quarter, will be increase cash earnings "well within" 12 months, he said.
The company also applauded its partner's attempts to reorganize its business over the last several months. "Lucent has made considerable progress in their restructuring activities, and this EMS model will clearly play an important role for them as they progress into the future," Celestica said.
Polistuk added that this transaction is flexible, for it doesn't preclude Celestica from doing more business with Lucent - or any other original equipment manufacturer - in the future. Further, production from other OEMs can move into these locations "over time."
To give Lucent the "most competitive cost" in the marketplace, much of the manufacturing will be moved to existing Celestica locations around the world, with the "high-complexity, high-skill intensive activities" remaining at those plants.
The headcount at the facilities will be "south of half" the current number, Celestica said, adding that the majority of the difference will end up at facilities in the company's network.
While the union for Lucent's workers is "fully briefed and on board," it has yet to ratify the deal. Celestica declined to comment on when the pact would receive union ratification.
Executives, who received the congratulations of three analysts, defended both the acquisition and Lucent, saying it gives Celestica a broader base of expertise while allowing it to expand its relationship with a dominant player.
"I know there's some baggage associated with some of the restructuring (Lucent's) going through, but we've worked with them for over three years, so we have a pretty good insight of where they're going and where they've come from, and we feel this is a good add to our portfolio," Polistuk said.
-Andy Georgiades, Dow Jones Newswires; 416-306-2031