Solectron Centum to demerge services division into a new company

Solectron Centum Electronics Ltd has announced that the Board of the Company has approved the demerger of the electronic manufacturing services (EMS) division into a new Company through a scheme of demerger u/s 391-394 of The Companies Act, with the appointed date as October 01, 2006.

The proposed scheme envisages that the current share capital of the Company would stand divided equally between the 2 Companies in such a manner that for every 2 equity shares of Rs 10/- each held by shareholders in the Company prior to the de-merger, such shareholder would be entitled to 1 equity share of Rs 10/- in Solectron EMS India Ltd (SEIL) and 1 equity share of Rs 10/- in the Company post de-merger.

The share capital of the Company as at October 01, 2006, stands at Rs 14.80 crores and 74 lakh shares of the Company will be cancelled under the proposed scheme. Post demerger, the fully diluted equity capital of the Company will be Rs 7.40 crores and the equity capital of SEIL shall be at an identical Rs 7.40 crores.

Both the Components and EMS businesses carried on by the Company have significant potential fro growth, and each business or undertaking is capable of attracting a different set of investors, customers, strategic partners, lenders and other stakeholders. Each of these two businesses requires independent focus and management so as to unlock their respective values and potential to all the stakeholders. Significantly, the Indian Promoter, Mr. Apparao Mallavarapu, will continue to lead the business by the Company, while Solectron Corporation will assume the responsibility of providing focused management attention and leadership to the demerged EMS division acquired by SEIL pursuant to the scheme.

The Company has, as part of its overall business reorganization plan, determined that the demerger of the EMS division would be necessary to achieve effective and focused management greater financial strength and flexibility, in the interest of maximising overall shareholder value. Such reorganization would be in the interests of all stakeholders.

The demerger would be tax neutral in the hands of the shareholders and the Companies. It is proposed to list the shares of SEIL in the stock exchanges where the shares of the Company are listed.

"The EMS and components divisions have different business models and Solectron believes the demerger is critical to enable a more effective focusing of management and other resources on the unique requirements of each business", noted Perry Hayes Chairman of the Board of Directors of the Company, and Senior Vice President and Treasurer of Solectron Corporation.

"This Demerger will held bring better focus to the business and I am very excited about the various options for growth this demerger brings to the two business" said Apparao Mallavarapu Managing Director of the Company.

The proposed demerger is subject to necessary statutory and regulatory approvals.

Source : Equity Bulls

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