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Stock Analyst Update

Solectron Pays Good Price for Rival

World's largest contract manufacturer gets even bigger.


What Happened?
Solectron (SLR) said Tuesday it would buy Asian contract manufacturer NatSteel Electronics for $2.4 billion in cash. The purchase price of $4.53 per share represents a 74% premium to NatSteel's most recent closing price. Domiciled in Singapore, NatSteel Electronics is the world's sixth-largest electronic manufacturing service firm and has facilities in Hungary, Mexico, Malaysia, and Indonesia.

What It Means for Investors
We think this is a nice deal for investors overall, as Solectron paid a very decent price for one of its larger peers in the industry. The fact that most of NatSteel's focus is on the PC sector isn't ideal, but we believe this deal is complementary to Solectron's business and will prove even more beneficial as opportunities in the communication sector increase. More important, Solectron strengthens its reach in several attractive regions, such as Asia, where the pace and trend of outsourcing is expected to especially increase in the coming years.

Jeremy Lopez does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.