Sanmina Corp., an electronics manufacturing company, is buying a bigger and older rival, SCI Systems Inc., for about $4-billion in stock.
The deal announced Monday creates a high-tech contract manufacturing company with $14-billion in revenue and factories in more than 20 countries. The biggest competitors are Flextronics Corp. of Singapore and Solectron Corp. of Milpitas, Calif.
Sanmina, founded in 1980 and headquartered in San Jose, has about 19,000 employees; SCI, launched in 1961 and headquartered in Huntsville, Ala., has more than 35,000. The companies said the deal would generate up to $150-million in cost savings at a time when the contract manufacturing industry is feeling the brunt of the high-tech slowdown.
If the merger sparks industry consolidation, as some speculate, one of companies most likely to be affected would be Jabil Circuit Inc. of St. Petersburg. Jabil is a major contract manufacturer, making circuit boards and other electronic components for companies such as Cisco Systems, Dell Computer and Hewlett-Packard Co.
Jabil spokeswoman Beth Walters said her company continues to look at acquisition opportunities, but she said the Sanmina-SCI merger does not make a merger trend by itself.
"It's not necessarily an indication of anything other than Sanmina and SCI thinking it makes sense for their business," she said.
Shawn Severson, who tracks Jabil for Raymond James & Co. in St. Petersburg, sees the deal as an isolated one. In his view, Sanmina can't be classified as a true contract manufacturer since it focuses on one product: circuit boards used in telecommunications.
"Jabil has a very distinctive and efficient strategy and I don't think this by any means forces them to have to adapt," Severson said.
The Sanmina-SCI merger, which needs shareholder and regulatory approval, calls for each share of SCI to be converted into 1.36 shares of Sanmina stock.
Sanmina shares lost $2.38, almost 11 percent, to $19.76 on the Nasdaq Stock Market on Monday, making the value of the stock swap about $4-billion.
In addition, Sanmina will assume about $1.5-billion in debt.
SCI shares were up $1.33, more than 5 percent, to $26.50 on the New York Stock Exchange.
_ Times staff writer Jeff Harrington contributed to this report, which includes information from the Associated Press.