Videocon expresses interest in Elcoteq

Indian consumer durables company Videocon Industries on Monday said it has signed a letter of intent with Finnish contract manufacturing firm Elcoteq, aimed at buying stake in the foreign firm.

The Finland-based company makes gadgets like mobile phones and set-top boxes for companies like Sony Ericsson, Philips and Cisco.

“Elcoteq has signed a non-binding Letter of Intent with Videocon Industries Ltd, granting the authority to negotiate and finalize a potential Definitive Transaction Agreement,” Videocon said in a filling to the Bombay Stock Exchange.

It added the two companies are “aiming at a rapid process to conclude the agreement. The transaction is expected to close by the end of the year”. Videocon officials declined to discuss the agreement’s details, but industry sources familiar with the company’s plans said it is working on taking a controlling stake in Elcoteq.

Sources said the deal size is estimated to be about $73 million (around Rs350 crore) and the transaction is expected to close by December. A report from Helsinki last week quoted an Elcoteq official as saying the deal size could be about $72.7 million, the same that was being discussed with a Chinese firm before the LoI agreement with Videocon materialised.

If the deal goes through, Elcoteq buyout is expected to give a fillip to Videocon’s growth plans in the area of contract manufacturing, especially wireless technologies. Elcoteq has presence in 14 countries and it has a plant in Bangalore, with estimated revenues of around Rs2,000 crore and around 3,000 employees.

The company, which has global revenues of around €3.4 billion last year, has been hit hard by the global economic meltdown and is reeling under huge debts. As an electronics manufacturing services company, Elcoteq makes mobile phones for the likes of Sony Ericsson. It also makes set-top boxes, flat panel TVs and enterprise network products for companies like Philips and Cisco.

The Videocon group has revenues of around Rs15,000 crore, majority of which come from consumer durables business and the rest from oil and gas.

What do you think people will this Elcoteq deal give videocon the much needed fillip in the Indian market?