Flextronics International and Solectron Corp. have announced that the two companies have entered into a definitive agreement for Flextronics to acquire Solectron, creating the most diversified and premier global provider of advanced design and vertically integrated electronics manufacturing services (EMS). The move poses danger to another two leading contract manufacturers: Asustek Computer and Foxconn Electronics.

Under the terms of the definitive agreement, unanimously approved by the boards of directors of both companies, shareholders of Solectron will receive total consideration currently valued at approximately $3.6 billion, based on the closing price of Flextronics ordinary shares on June 1, 2007. Each share of common stock of Solectron will be converted into the right to receive, at the election of each of the individual holders of Solectron shares, either, but not a combination of 0.3450 shares of Flextronics or a cash payment of $3.89 per share, subject to the limitation that not more than 70% in the aggregate and no less than 50% in the aggregate of Solectron shares will be converted into shares of Flextronics.

As a result, if holders of more than 70% of Solectron’s outstanding shares elect to receive Flextronics stock, the shares of those holders to be converted into Flextronics stock will be proportionately reduced so that not more than 70% of Solectron’s outstanding shares in the aggregate are converted into shares of Flextronics stock, with those holders’ remaining shares converted into cash. In this case, Solectron shareholders electing cash consideration will receive cash consideration for all their shares.

The combined company will have the broadest worldwide EMS capabilities, from design resources to end-to-end vertically integrated global supply chain services, which will enhance its ability to design, build, and ship a complete package product for its OEM customers. By combining Solectron’s resources and unique skill sets, Flextronics will be able to provide more value and innovation to customers by leveraging the combined global economies of scale in manufacturing, logistics, procurement, design, engineering and ODM services.

Operating in 35 countries, with a combined workforce of approximately 200 000 employees, including approximately 4000 design engineers, the combined company’s annual revenues will exceed $30 billion across seven well-diversified customer market segments and several vertical component divisions.

The new company will be larger than Asustek or Foxconn, the two companies that have been aggressively expanding their market presence in the recent years.

Solectron is a U.S.-based company, Flextronics is based in Singapore.