Electronics Production | November 30, 2005
Avnet announces transactions to Increase focus and strengthen position
Avnet, Inc. announced three transactions yesterday that will increase Avnet Technology Solutions' focus on its core two-tier distribution business and strengthen its leadership position in the distribution of enterprise computing solutions.
Avnet has agreed to sell its US-based HP enterprise end-user business to Logicalis, Inc. The business being sold, which had revenues in the last fiscal year of approximately $100 million, is an HP Premier Partner focused on selling HP's enterprise computing products directly to end-users. Logicalis, Inc., a wholly owned subsidiary of U.K. based Logicalis Group, is a leading systems integrator focused on providing high-performance technology solutions to corporate and public sector customers in the United States. Avnet expects this transaction to close in early 2006. Separately, Avnet has also agreed to combine Avnet Enterprise Solutions, a division of Avnet that specializes in selling network lifecycle management solutions directly to end-users, with the employees and resources of Calence, Inc., a leader in client-centric networks, to form a new company, Calence LLC. Avnet Enterprise Solutions had annual sales of approximately $190 million in the fiscal year ended July 2, 2005. Calence LLC, which will be headquartered in Tempe Arizona, will be one of the largest solutions providers in the United States focused exclusively on networking solutions. The new company will consist of approximately 400 networking professionals located across the United States in 20 offices, generating combined annual revenue of approximately $300 million. The transaction, which is subject to regulatory approval, is also expected to close in early 2006. Avnet's investment will be accounted for using the equity method. Concurrent with this transaction, Avnet and Calence LLC. have entered into a five-year network business process outsource agreement for Avnet's data and voice networks, and telecommunications expense management support. 'Avnet's decision to divest these two businesses will allow the Technology Solutions Group to focus on its core competency in two-tier distribution,' said Roy Vallee, Avnet's chairman and CEO. 'These transactions will allow Avnet's non-distribution businesses to join companies focused exclusively on end-user customers where they can enjoy additional scale advantages and build on their success in delivering superior value to their customers.' Avnet Partner Solutions, a division of Avnet and value-added distributor of enterprise solutions, and Logicalis, Inc. also announced an exclusive distribution agreement whereby Logicalis will procure all of its HP and IBM enterprise computing products from Avnet. This multi-year agreement will allow Logicalis to benefit from more efficient fulfillment through Avnet's investment in taking cost out of the supply chain and in enabling faster-than-market growth for its partners. The total value of the agreement during the five-year contract period is expected to be more than $1 billion. Mr. Vallee added, 'Avnet Partner Solutions has built a leadership position in enterprise computing distribution by focusing on the success of our partners. Due to our substantial investments in systems and resources, Avnet's partners have been able to accelerate their growth and profitability. We welcome Logicalis to the Avnet family and look forward to a very successful relationship.' Avnet expects the combined effect of these transactions will result in no material impact to revenue or operating income in its fiscal year ending June 2006. However, the sale of Avnet's US-based HP enterprise end-user business to Logicalis will result in a pre-tax gain to be recorded in Avnet's third quarter of fiscal 2006 ending April 1, 2006.
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