FLEXTRONICS WALKS AWAY WITH 55% IN HUGHES SOFTWARE FOR $226 MN

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In one of the biggest tech deals in India, $15bn electronic manufacturing services company, Flextronics has acquired a 55% stake in Hughes Software Systems for $226m from the Rupert Murdoch-controlled Direc TV unit, Hughes Network Systems. Flextronics will also have to make an offer for an additional 20% which would cost it at least $82m, in addition to the $226m. This is also estimated to be among the larger cross-border deals in any sector in India, after some of ONGC's acquisitions in the oil and gas sector.

Several high-profile venture funds like General Atlantic Partners (GAP), Thomas Weisel and Temasek and firms like Wipro and TCS had shown interest in the company, according to sources, and Flextronics is believed to have entered the fray only about six weeks ago.

On 7 June, ET reported for the first time that Flextronics was in the race to buy HSS. A contract manufacturer, it was looking to augment its software capability.

Flextronics will retain the current management team at HSS.

"It is a good team, doing a great job. We would like it to continue taking HSS forward," says Ash Bhardwaj, president, Design Services at Flextronics. "Software was the only missing piece in our offerings and now we can offer complete outsourcing solutions to telecom OEMs, he added. Planning to cross-sell to each other's customer base, Flextronics claims to now become the first electronic manufacturing service (EMS) provider to offer embedded and application software development for telecom infrastructure products and customers.

HSS also insisted that it maintains its sales and profit forecast for the year to March '05. "Revenue is expected to grow approximately 25% in fiscal '05. Profit growth will be in the range of 28-32%," says Arun Kumar managing director, HSS. "Hughes is going to remain a publicly held company," he adds.

Current business from News Corp is also likely to continue. "The promoters of HSS were one of its top-five customers. "We (HSS) have got an assurance while the deal was being finalised that they will continue to remain our big customer," Arun Kumar, president and MD of HSS, said.

"It is the largest tech deal that has happened in India till now," said Amit R Chandra, joint managing director, DSP Merrill Lynch. "This is the third big deal in the last couple of months, a clear signal of foreign investment flowing into India," he adds. DirecTV was advised by DSP Merrill Lynch, while Flextronics was advised by Citigroup.

Rupert Murdoch-controlled media conglomerate News Corp has put its stake in HSS on the block as software services and telecom do not fit in with its media and cable business, and the software firm came to it only through a global takeover. News Corporation acquired a 55.4% stake in Hughes Software in April '03 as a part of its $6.6-bn acquisition of parent company Hughes Corporation in the US in last April. Non-promoter shareholding in HSS stands at 45.04% at the end of '03-04.

Flextronics is a contract manufacturer of equipment for companies like Sony-Ericsson, Hewlett-Packard and Siemens. Focused on delivering operational services to technology companies, it has design, engineering, manufacturing and logistics operations in 29 countries.

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