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KKR Buys Flextronics Unit

Kohlberg Kravis Roberts & Co. will buy Flextronics Software Systems for around $900 million. Flextronics International Ltd. is world’s largest producer of electronics for other companies.

KKR is buying 85% of the Bangalore-based India unit of Flextronics and marks its presence in the region after it opened its office in Tokyo & Hong Kong last year. Flextronics said it would retain a 15% stake in the business that would operate as an independent software and solutions company.

KKR last year bought Agilent Technologies Inc.’s semiconductor unit, whose operations are mainly in Singapore. Palo Alto, California-based Agilent is the world’s biggest maker of scientific-testing equipment.

“Our investment in Flextronics’ software development and solutions business is an outstanding opportunity to create value in a high-growth sector,‘’ Adam H. Clammer, a KKR executive said in the statement.

The Indian unit was formerly Hughes Software Systems, based in New Delhi, before Flextronics acquired it. Flextronics, which in June 2004 agreed to buy 55 percent of Hughes for $226 million, renamed the company after increasing its stake. Flextronics Software has a center in Bangalore focusing on development of software for the Internet, accommodating about 600 employees.

Flextronics’ Indian unit develops software for high-speed mobile phone networks and calls made over the Internet for Motorola Inc., Sun Microsystems Inc. and other companies.

Strategy

Buyout firms typically finance takeovers by borrowing against their targets’ assets to augment their own funds. They then seek to improve profits before selling the companies within five years to other funds or through initial public offerings.

Citigroup Inc. and Merrill Lynch & Co. will arrange financing for the Flextronics purchase, the statement said.

KKR hired Michael Marks, the chief executive officer of Flextronics to advise on Asia and technology investments, the firm said in a statement Dec. 7. KKR in October appointed Deryck Maughan, a former deputy chairman of Citigroup Inc., to supervise the buyout firm’s Asian investments.

Flextronics is seeking to raise more than $1 billion by selling its software, network services and semiconductor units, Chief Executive Officer Michael McNamara said in the statement. It expects to gain $175 million after taxes from this deal.

Flextronics is “focusing our efforts and resources on our core electronics manufacturing services business,'’ the company said in an e-mailed statement today.

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