Videocon to buy stake in Elcoteq for $72 mn

MUMBAI: Finnish electronics firm Elcoteq said on Friday that it has reached a preliminary agreement with Videocon Industries for the Indian company to buy an equity stake in it for about $72 million (Rs 345 crore/e50 million). The announcement comes two days after it called off a similar deal with China’s Shenzhen Kaifa Technology, entered into in July. ET was the first to report the deal on October 1. The loss-making Elcoteq said it aims to conclude negotiations as soon as possible and close the deal by the end of the year. One of the world’s top electronics manufacturing services providers, it designs and makes mobile phones, set-top boxes and flat panel televisions for companies such as Research in Motion, Nokia, Sony Ericsson, Cisco and Philips. Elcoteq operates in 15 countries and has a facility in Bangalore. Last year, it suffered a net loss of e66 million on sales of e3.4 billion. Elcoteq shares had climbed 20% to e1.3 in Helsinki at 8.30 pm Indian time, valuing the company at e138 million. Consumer goods maker Videocon is looking to capture a slice of the growing global electronics manufacturing services business, especially for iPods, iPhones and computers. Globally, telecom and mobile handset makers such as Apple and RIM are increasingly outsourcing manufacturing jobs to low-cost countries as part of their global cost reduction initiatives. VN Dhoot, chairman of the Videocon group, declined to comment on the Elcoteq deal before making an announcement to the Bombay stock exchange. But executives close to the development said Videocon is looking at funding the deal primarily through internal accruals. “Roping in private equity partners would complicate the deal, especially given Elcoteq’s complicated debt structure,” an executive said. Videocon, which acquired Thomson's global colour picture-tube manufacturing business for e240 million four years ago, sees synergies between Elcoteq’s business and its consumer electronics and mobile services businesses, said a person close to Videocon. The Rs 15,000-crore Videocon Group, which derives 60% of its sales from consumer electronics and the rest from oil and other businesses, made abortive attempts to buy Daewoo Electronics in 2006 and Motorola last year. Elcoteq has announced a restructuring plan to lay off around 5,000 staff and close several plants in Romania, Russia and US citing ‘an exceptionally uncertain market situation and general economic development’. In July, as part of its plan to cut costs, it sold a majority of the machinery, equipment and materials at its facility in Tallinn, Estonia, to Ericsson and also transferred around 1,200 employees.