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Filed by Solectron Corporation
Pursuant to Rule 425 under the Securities Act of 1933
Subject Company: C-MAC Industries, Inc.
Commission File No. 1-15108
SOLECTRON CALL SCRIPT-COMBINATION WITH C-MAC, INDUSTRIES, INC., AUGUST 9, 2001
Intro (Susan Wang)
OPENING
Good afternoon, everyone, and thanks very much for joining us on such short
notice. We are very pleased today to announce that Solectron has agreed to merge
with C-MAC Industries in a deal that will further strengthen both of our
capabilities in meeting changing OEM customer requirements.
Joining me to discuss the transaction are Ko Nishimura, Solectron chairman,
president and CEO, and Dennis Wood, the chairman, president and CEO of C-MAC
Industries. We will hear from both of them in just a few moments.
On this call, we will recap the transaction, discuss how C-MAC fits with
our continuing customer-focused strategy and provide to you the C-MAC
perspective. We will also discuss our updated guidance and take your questions,
with a plan to conclude the call by about 9:45 a.m. eastern time.
SAFE HARBOR
Let me first remind you that during the course of this conference call, we
may make projections or other forward-looking statements about the expectations,
beliefs, plans, intentions and strategies of Solectron and C-
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MAC. Our ability to achieve planned business objectives involves many risks and
uncertainties. Forward-looking statements relating to expectations about future
events or results are based upon information available to the companies as of
today's date. We assume no obligation to update any of these statements, and
these statements are not guarantees of Solectron or C-MAC. The financial results
and product development of Solectron and C-MAC could differ materially from
current expectations. Factors that may affect the ability to achieve planned
business objectives include, but are not limited to, the following: 1) the
companies' revenues and earnings are subject to a number of factors that make
estimating operating results extremely uncertain; 2) competition for the
companies' products is intense; 3) the uncertainties of whether new products,
product extensions or product strategies will be successful; 4) risks associated
with this acquisition, including (a) conditions in the financial markets
relevant to the proposed transaction, (b) the failure to achieve expected
synergies and efficiencies of operations, (c) risk of price fluctuation, (d)
loss of major customers, (e) the ability to manage business integration, (f)
risks associated with international sales and (g) operations and environmental
regulations; 5) loss of key personnel; 6) litigation, including litigation over
intellectual property rights; and 7) general technological and economic factors.
The risks associated with Solectron's business are discussed in Solectron's
Annual Report on Form 10-K for the year ended August 25, 2000, and in subsequent
quarterly reports on Form 10-Q. The risks associated with C-MAC's business are
discussed in C-MAC's Annual Information Form and Annual Report on Form 40-F for
the year ended December 31, 2000, and in subsequent quarterly reports to
shareholders and reports on Form 6-K. You are encouraged to read this
information carefully.
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We caution you that such statements reflect only our current expectations,
and that actual events or results may differ materially. We refer you to the
risk factors and cautionary language contained in the documents that the
companies file from time to time with the Securities and Exchange Commission,
specifically recent filings on Forms 10-K, 10-Q, 8-K, 6-K, S-3, S-4 and 40-F,
and documents that C-MAC files from time to time with the Canadian Securities
Administrators, specifically, C-MAC's recent annual report, quarterly reports,
annual information form, management information circular and material change
reports, as well as today's news release. Such documents contain and identify
important factors that could cause the actual results to differ materially from
those contained in our projections or forward-looking statements. We undertake
no obligation to update those projections or forward-looking statements in the
future. As I mentioned, this afternoon we issued the news release announcing
this transaction, and on today's call we will refer to the contents of that
release.
Solectron, its executive officers and directors, certain other members of
management and employees may solicit proxies from Solectron stockholders in
favor of the business combination and C-MAC, its executive officers and
directors, certain other members of management and employees may solicit proxies
from C-MAC stockholders in favor of the business combination. Information
concerning the participants in the solicitation will be set forth in a proxy
statement that will be filed with the Securities and Exchange Commission and a
circular that will be filed with the Canadian Securities Administrators.
Information about Solectron's officers and directors is included in
Solectron's Proxy Statement for its 2000 Annual Meeting of Stockholders held
January 18, 2001, and filed with the SEC on December 11, 2000.
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Information about C-MAC's officers and directors is included in C-MAC' Notice of
Meeting and Management Proxy Circular for its 2000 Annual Meeting of
Stockholders held May 3, 2001, and filed with the Canadian Securities
Administrators on March 30, 2001. These documents are available free of charge
at the SEC's web site at http://www.sec.gov, at http://www.sedar.com (the web
site maintained by the Canadian Securities Administrators) and from Solectron.
TRANSACTION SUMMARY
Now, let me give you the highlights of our announcement.
Today, Solectron and C-MAC entered into a definitive agreement pursuant to
which C-MAC Industries will merge into a wholly owned subsidiary of Solectron.
C-MAC is based in Montreal and for the 12 months ending June 30, had revenues of
$2.0 billion U.S. dollars.
In this all-stock transaction, C-MAC shareholders will elect to receive
either 1.755 shares of Solectron common stock or 1.755 shares of a wholly owned
Canadian subsidiary of Solectron in exchange for each C-MAC share outstanding.
The total enterprise value of the deal is approximately $2.7 billion, including
the assumption of approximately $30 million in net debt. This transaction is
structured to be tax-deferred for validly electing Canadian-resident C-MAC
shareholders, and taxable to U.S.-resident C-MAC shareholders.
The transaction is subject to approval by the shareholders of Solectron and
C-MAC and certain regulatory bodies. We anticipate concluding the transaction by
the end of calendar 2001.
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TRANSACTION BENEFITS
A combination of Solectron and C-MAC is expected to yield several
compelling benefits. Primary among them is C-MAC's strong presence in high-end
systems integration and manufacturing capabilities -- which Solectron, too, has
been steadily building. C-MAC also provides Solectron with strategic entry into
the automotive industry, which both companies have targeted as a growth
opportunity. In addition, Solectron will be able to leverage C-MAC's proven
SELECTIVE vertical integration approach, which results in higher margins through
supply-chain management and provides make-or-buy flexibility in fulfilling
customer orders.
C-MAC is a very well run company and a great cultural fit for Solectron.
More fundamentally, this transaction represents another strategic step forward
in continuously developing the skills, expertise and presence required to meet
ever-changing customer needs. In addition, it gives Solectron a greater presence
and business investment in Canada in order to provide expanded support services
to our Canadian customers.
Now, let me turn to Ko for his comments and perspective. Ko?
STRATEGY (KO)
Thank you, Susan, and good afternoon to everyone on the call. I am very
excited to talk with you today. I am also very pleased to have Dennis Wood with
us. I welcome him and the C-MAC team to the Solectron organization.
Certainly, the combination with C-MAC will help Solectron continue to
expand our capabilities offering in strategically important areas and extend our
presence into the automotive industry.
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I am also excited about the collective actions we are taking to enhance
Solectron's position as the leading provider of end-to-end technology,
manufacturing and supply chain solutions. We have always taken a
customer-focused approach to building our capabilities. Our strategy remains
very consistent -- as the total supply chain facilitator, we will acquire or
build the capabilities necessary to help our customers -- and our company --
succeed.
When we entered this overall market downturn, we said we would use this
time as an opportunity to accelerate key strategic initiatives and take the
steps necessary to meet customer needs coming out of the downturn. Implicit in
that approach was our anticipation that OEMs' needs would change quickly and
accelerate the outsourcing trend. In fact, that IS what's happening. And we are
with them all the way.
CHANGING OEM NEEDS
It wasn't too long ago that an EMS company could succeed with a fairly
limited scope of capabilities -- PCBA, new product introduction expertise and
some skill in managing the supply chain.
At Solectron, we have always worked to become an even more valuable partner
by expanding those core capabilities, and our success at doing that has been the
source of our industry leadership over the last decade.
Now, as we anticipated, the downturn is creating the need for OEMs to rely
more heavily on the outsourcing model. They need reliable, global EMS partners
with a broad range of skills and expertise. They need partners with the strength
to provide true end-to-end technology, one-stop manufacturing and supply-chain
solutions -- from design to full systems production, product
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fulfillment and after-sales services, as well as the logistics skills to make it
all happen.
Think of it this way: In the past, EMS providers would supply various
services, such as NPI and manufacturing. OEMs utilized those services, but they
also continued to have direct contact with other parties, in fulfillment,
components and materials, perhaps systems integration and other areas.
Today's economy is forcing OEMs to reduce costs and focus even more tightly
on their core competencies -- and they can no longer afford the internal
resources to have multiple points of contact in the supply-chain process.
Instead, they look to US to provide all that -- and we have the ability to
deliver what they want.
In effect, we are the general contractor of the supply chain for our OEM
customers. They can rely on us to coordinate, conduct make-or-buy decisions, and
otherwise do the things necessary to design, make, deliver and service their
products -- all with the fastest time to market and lowest total cost of
ownership.
We have been steadily building precisely those capabilities -- through
internal development and through acquisitions -- including the transaction with
C-MAC. Today, I believe we have the strongest capabilities to meet OEM needs.
SLR'S CONSISTENT STRATEGY
In the last two years, we have strengthened relevant capabilities in
several areas -- including engineering & design, systems integration and
assembly, NPI, order fulfillment and distribution, and after-sales service. We
have also continued to build expertise and a strong customer base in optical
services and other important high-technology areas.
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We have also entered important new industries, first into consumer
electronics through our relationship with Sony and, now, into automotive through
C-MAC.
In addition, we have strengthened our geographic presence, particularly
through NatSteel in Asia, which will be a region of growing importance to us, to
our customers and to their end markets.
And in Global Services, we have built a strong, full-service after-sales
presence on five continents, most recently with the addition of a Solectron site
in Japan and with a European repair hub in Amsterdam.
So, you can see that we have been deliberately, strategically and
systematically building the relevant capabilities, strengths and presence
required to meet customer needs as the leading -- and preferred -- EMS partner.
BENEFITS OF C-MAC
Let me now discuss the important elements of the C-MAC transaction.
Benefit 1: Increased high-end technology capabilities.
C-MAC is an industry leader in high-end systems design, manufacturing and
technology, with strong skills that help round out Solectron's complete systems
solutions capabilities.
Specifically, C-MAC has strong high-end systems-integration capabilities,
including complex electromechanical design and assembly, with strategic
backwards integration into metal and backplane fabrication. C-MAC also has a
breadth of capabilities in optical networking component fabrication and
assembly.
Combined with our current capabilities, we will be even more effective at
competing for full-systems work from customers as they increase their
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reliance on EMS partners. With our combined capabilities, we have a strong
competitive edge in the breadth and depth of full-solution services we offer our
customers.
Benefit 2 is C-MAC's selective vertical integration approach.
This dynamic "make-or-buy" approach enables us to capture the benefits of
limited component fabrication while reducing our exposure to the highly
leveraged-cost model of a fully integrated company.
This approach strengthens the performance of internal business units by
requiring them to be competitive as stand-alone businesses, since much of their
production is sold to other companies. On the flip side, in challenging market
conditions, we can boost capacity utilization and revenue by pulling more work
in house.
Having said that, let me note that the fab side represents a modest portion
of C-MAC's revenues. They are focused on high-end applications and on specific
fab capabilities needed to further penetrate specific industries.
Benefit 3 is revenue and margin opportunities.
We will have additional revenue opportunities by expanding existing
customer business relationships and developing new relationships. We will also
have opportunities to enhance margins by increasing our value-added content and
more closely managing the supply chain.
C-MAC's technology-driven manufacturing services provide us with a more
robust high-end, technology-focused value proposition that allows room for solid
margins in the industries we serve.
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In addition, C-MAC's focus on high-end component engineering carries margin
benefits and creates opportunities for further penetration into other important
industries.
Benefit 4: Complementary strength in network/telecom equipment sectors.
New high-end technology design and engineering expertise and, in
particular, a full-systems suite of services in networking and communications,
will further develop our industry-leading position and offerings in those
critical sectors.
At the end of the day, we are extremely well positioned to capitalize on
the upturn in both the network and telecom equipment industries.
Benefit 5: entry into targeted growth segments.
We have targeted specific new industry segments, and C-MAC brings access to
one of those targets -- the automotive industry.
C-MAC generates about 8 percent of its sales from the automotive industry.
It's an attractive industry, with end-market growth expected to exceed its
recent historical annual growth of about 15 percent. It's also a challenging
industry to penetrate initially, and C-MAC has established a solid foothold.
Dennis and his team are approaching it in the right way, building a base of
support and credibility in key electronic components as a prelude to future
expansion.
Benefit 6: Enhanced capabilities for our Canadian customers.
With our complementary strengths in technology-driven manufacturing
services and in the network/telecom and automotive industries, we will be
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able to provide a wider range of value-added services to our Canadian customers.
We will also bring greater resources and geographic benefits to C-MAC and its
customers.
[PAUSE]
In addition to those benefits, C-MAC and Solectron are an excellent
cultural fit.
In the last several weeks, I've spent a great deal of time with Dennis and
his organization. I am impressed with what I've seen from the leadership, from
the operations and from a cultural perspective.
Cultural fit is among the most important success criteria for any
transaction we undertake. The good news is that our companies are very
compatible. C-MAC's strategy is highly complementary with our strategy. We are
both extremely focused on providing value-added services to our customers, and
our decisions are driven by doing the right things to help our customers
succeed.
Dennis, on behalf of all of us at Solectron, I look forward to working with
you and welcoming your worldwide team.
C-MAC PERSPECTIVE (DENNIS)
Thank you, Ko. I couldn't agree more that our two companies are an
excellent fit - strategically and culturally.
Over the past 15 years, C-MAC has evolved from a company having one
product, a battery feed resistor, which was sold to a single customer, Nortel;
into a global Technology Design and Manufacturing Services company with over 500
regular customers.
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About three years ago, we responded to our customers' evolving requirements
that called for a reduction in their respective supply bases and time to full
production, enhanced technologies, design expertise and aggressive cost
reduction programs by creating a Selective Vertical Integration Strategy.
Our SVI model focuses on the "make versus buy" decision implemented by our
Global Supply Chain team. Our strategy differs from vertical OEM strategies of
the past in that every single one of our plants is a profit center whose goal is
to sell a majority of its production to external customers. In this way, we
constantly benchmark ourselves against the industry and have successfully
maintained our industry-leading margins. In challenging economic times such as
these, we have had the flexibility to pull in some of our outsourced production
until conditions improve. In order to maintain our profitability, we have become
a global Technology Design Manufacturing Services ("TDMS") company offering our
communications customers total systems solutions and, similarly, we have become
a Full Service Supplier to the Transportation Electronics industry.
We have carefully monitored the competitive landscape and have observed our
peers engage vertical capabilities to varying degrees over the past couple of
years. They have added capabilities in PCBA fabrication, enclosures, cable
harnesses and systems integration. To effectively compete for the larger OEM
divestitures and increase our market share in the future, we recognize the need
for additional high-volume PCBA capability and scalability.
There are three principal alternatives to broaden our PCBA capability:
C-MAC could buy or build the capability or merge. The two first alternatives are
less attractive to us, given the time, capital and resource
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requirements in addition to the financial condition of the available properties.
Furthermore, we believe that we will lose momentum at a time when OEMs are
accelerating their outsourcing activities.
After spending a great deal of time with Ko and the Solectron team, we are
convinced that the combination of the two companies represents the best
alternative for our shareholders, employees, and customers and will create the
leading TDMS company in the industry.
Ko and Susan have articulately described the benefits of the transaction and I
would like to spend a few moments discussing what we perceive the benefits to be
to Mar's shareholders, customers, and employees.
From our shareholders perspective, the combination of the 2 "best in class"
companies with complementary capabilities will increase the value proposition to
our customers and position us to be the premier TDMS company in the industry
which will bode well for future revenue growth.
Furthermore, our proven Selective Vertical Integration Strategy will provide
revenue enhancement opportunities from an earnings perspective and we will be
ideally positioned to benefit from the industry upturn. We have been disciplined
in our approach and have not sacrificed earnings for top line growth. We will
clearly be able to leverage this model with Solectron's customer base and we
will now have the opportunities to satisfy our existing OEM customers PCBA and
after market requirements internally. Keep in mind that each dollar of C-MAC
revenue equates to $2-$3 of PCBA revenue and vice-versa!
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From a customer perspective, we will be ideally positioned to offer a complete
end-to-end solution from design and technology, to full systems integration and
order fulfillment, to aftermarket support, on a global basis.
We are particularly excited about current and future opportunities within the
transportation electronics industry. We have spent the last 5 years building the
design, electronic and electromechanical capabilities required to become
competitive within this industry and have been elevated to the position of a
Full Service Supplier. Given that the major automotive OEMs are now seeking
increased electronic solutions, capabilities that they do not necessarily have
in-house, we will now have the scalability to take on the larger OEM programs.
Given that many of these programs require extensive design expertise and
engineering capability, unique to the automotive industry, we are uniquely
positioned to benefit from the accelerated divestiture activity by the OEMs.
Similar to our transportation electronics strategy, we have been focused on
providing our customers with total solutions within the communications industry.
We will now have the technology and scalability to take on larger, complex
systems programs and have the manufacturing expertise to produce most of the
"content" of the systems in-house, where it makes economic sense to do so.
Having the internal manufacturing capability allows us to guarantee security of
supply for our customers and also gives us leverage with the supply chain.
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With our combined capabilities, we will also reduce our customers' time to full
production and overall cost model.
And, from our employees' standpoint, they will share best practices with the
Solectron team and will continue to play key roles in our Company's future
success. They will become part of the premier TDMS company in the industry. The
C-MAC team has always responded to their customers changing requirements with a
high degree of integrity, professionalism and enthusiasm that has insured our
long-term success. The combined company will provide additional career paths and
opportunities for the C-MAC team and together we will build the TDMS company of
the future and prepare for the next generation of outsourcing.
SUMMARY AND NEXT STEPS (KO)
Thanks, Dennis.
From here, of course, there is a lot of work to do. Our business teams will
get to know each other better as we work toward completing the transaction. As
the news release indicates, we expect this transaction to close during the first
half of our new fiscal year -- which would be by the end of February.
As importantly, we remain very busy on additional actions to build our
capabilities and win new OEM business that's in the pipeline. It is a very busy
and very exciting time, and we look forward to sharing our updates again.
This truly is an exciting operating environment, and Solectron is best
positioned -- with the size, strength, technology and skills -- to continue our
industry leadership.
Thanks for your interest and support. Now, let's turn back to Susan.
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Thank you, Ko.
In addition to the news release announcing the C-MAC transaction, Solectron
issued a news release this afternoon providing initial guidance for fiscal year
02 and updating our Q4 guidance. Let me recap that guidance.
In fiscal 2002, Solectron plans to generate sales in a range of $16 billion to
$18.5 billion and cash earnings per share* of 62 to 66 cents. Those ranges are
subject to changes in market conditions and before acquisitions, including the
C-MAC transaction.
Let's turn now to Q4. Consistent with our prior guidance, we expect to generate
sales of $3 billion to $3.5 billion and cash EPS of 5 to 9 cents -- again,
before restructuring charges and one-time charges.
As of today, updates on non-recurring items are shaping up as follows. As you
already know, the fourth quarter will include $50 million in restructuring
charges that we announced June 18. At that time, we also said we would consider
what additional restructuring might be necessary. After analyzing that matter
over the last six weeks, we now plan to record an additional fourth-quarter
restructuring charge of up to about $210 million. Coming in at that level would
mean total fourth-quarter restructuring charges of about $260 million.
In addition, we expect to incur a one-time, non-recurring charge of about $58
million related to credit and other exposures. While we continue to have general
credit loss reserves, a number of smaller accounts are in or at near
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bankruptcy and we determined that it is appropriate to build up a specific
reserve for such potential, unusual losses under these difficult market
circumstances.
Operator, please open up the lines for questions.
Q&A (SUSAN)
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