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Jabil Circuit Inc. (NYSE: JBL) has announced plans to sell its aftermarket support business to iQor Holdings Inc. for $725 million as the electronics manufacturing services provider intensifies its multiyear reorganization and cost-reduction programs.
The EMS provider said the decision to sell the aftermarket services (AMS) division is in furtherance of plans to focus primarily on its core manufacturing operation, adding it will pursue acquisition that complement this strategy. Earlier this year, Jabil purchased Nypro Inc., a supplier of precision plastic products for OEMs in the healthcare, packaging and consumer electronics market.
Jabil has been struggling to improve operating performance for a while and the company has in recent months exited low-growth and low-margin businesses. It is currently in the process of disengaging completely from providing manufacturing services to BlackBerry Ltd., maker of the BlackBerry smartphone. The decision, which executives said was tough for Jabil, followed growing problems to retain market share at the smartphone manufacturer.
“The wind-down of our BlackBerry relationship is moving forward in a positive and partnering manner, with significant progress made in mitigating and unwinding our working capital exposures,” said Forbes Alexander, CFO of Jabil during a conference call with analysts. “We expect to support BlackBerry through the first calendar quarter of 2014, and charges previously anticipated with this disengagement are expected to remain in the range of $35 million to $85 million.”
The sale of the AMS business to iQor is expected to close in the first quarter of 2014. The buyer will help Jabil provide continuing services to its current customers, the company said. To close the deal, iQor will pay Jabil $675 million in cash and $50 million in its senior non-convertible preferred stock, with dividends payments at an annual rate of 8 percent, according to Jabil.
“This divesture should provide us the financial flexibility to potentially add more engineering intensive capabilities, which should allow us to expand and diversify our core manufacturing business,” said Mark T. Mondello, CEO of Jabil, in a statement. “We expect to continue to pursue opportunities similar to our recent Nypro acquisition.”
