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Flextronics expands again
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July 31, 2000: 8:17 p.m. ET
Contract manufacturer buys Chatham Technologies for $590 million
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NEW YORK (CNNfn) - Flextronics International Ltd., the world's No. 4 provider of electronic manufacturing services on a contract basis, agreed Monday to acquire Chatham Technologies for $590 million in stock.
Chatham is a Chicago-based provider of electronics packaging systems, or enclosures, specializing in the communications industry. It was formed just three years ago and now boasts more than 4,000 employees and more than two million square feet of manufacturing space.
Until recently, Flextronics (FLEX: Research, Estimates) -- which is domiciled in Singapore but does has most of its corporate offices in San Jose, Calif. -- had focused its business "inside the box," designing and building the circuit boards and other elements of electronics while relying on other companies for the box that surrounds the electronics.
In March, Flextronics bought Palo Alto Products Inc. which, among other things, added enclosures to Flextronics rapidly expanding portfolio of services. That company and Chatham Technologies will become a part of a newly-formed business unit called Flextronics Enclosures, the company said.
 "It moves them further into enclosures, which a lot of the companies have been looking at," J. Keith Dunne, an analyst who covers the contract manufacturing industry for Robertson Stephens in San Francisco.
But even more interesting than the strategic move the deal represents for Flextronics is the light it sheds on the value of some other enclosure companies, Dunne said.
Including the assumption about $235 million in debt, Flextronics is paying about $825 million for Chatham. And that's roughly 13 times Chatham's earnings before interest, taxes, depreciation and amortization, Dunne said.
"Applied Power, the largest enclosure company in the world is getting ready to spin off and become a pure-play enclosure company, is only trading at five to six times EBITA, Dunne said. "You might get some action in Applied Power tomorrow."
Earlier this month, Applied Power (APW: Research, Estimates) said it would spin off all of its non-core units to focus on its enclosures business.
In addition to adding enclosures to its portfolio of services, the deal also fits well with Flextronics' broader strategy, executives said.
 "The combined capabilities of Flextronics and Chatham Technologies allows for the strengthening of speed and flexibility, offering a comprehensive set of custom design and manufacturing services to the growing customer base in the strategically important communications industry," said Michael Marks, Flextronics' chairman and chief executive officer.
As have most contract electronics manufacturers, Flextronics has been weighing its business heavily toward communications. In May, the company inked a $30 billion outsourcing deal with Motorola, the largest such contract to date.
Chatham's customer base includes some of the world's top telecommunications companies, including Ericsson (ERICY: Research, Estimates), Nortel Networks (NT: Research, Estimates), Lucent Technologies (LU: Research, Estimates), Cisco (CSCO: Research, Estimates) and AT&T Wireless (AWE: Research, Estimates).
The agreement, announced after the markets closed, calls for Flextronics, to issue up to 8.33 million of its shares for the closely-held Chatham.
Both company's boards and several "significant shareholders" have agreed to support the deal, which requires approval from Chatham shareholders and federal regulators. The two sides expect the deal to close by the end of August.
Flextronics (FLEX: Research, Estimates) shares inched up 29/32 to 70-25/32 in trading Monday. 
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