UTStarcom is selling off the cellular handset distribution company that it purchased from Audiovox almost four years ago to an investment group that includes current management and AIG Vantage Capital.
Current management and employees of what was UTStarcom's personal communications division will remain with the newly independent company.
AIG will become the controlling shareholder, but current division management will hold a 30 percent stake in the new company, to be called Personal Communications Devices (PCD), said division president Philip Christopher. UTStarcom will retain a 2 percent stake. The deal also includes additional investors and was expected to close before the Fourth of July.
The investor group is paying about $240 million for the business. UTStarcom could net up to $50 million more over the next three years if Hauppauge, N.Y.-based PCD meets certain financial goals.
UTStarcom, founded in 1991, said it is selling off its personal communications division as part of a restructuring to focus on IP-based communications products for telecom operators in rapidly growing economies in areas such as Asia, Latin America and eastern Europe. During the fiscal year ending March 31, UTStarcom posted a net loss of $195.6 million on net sales of $2.5 billion. Earlier this year, UTStarcom announced plans to sell off another division. UTStarcom had four bidders for PCD.
UTStarcom will continue to make and sell cellular handsets to PCD for sale in the Americas. UTStarcom will also continue to sell handsets directly to carriers in other areas of the world. The duration of the sales agreement with PCD wasn't disclosed.
Although "the operating performance of PCD has been strong in recent periods," UTStarcom CEO Peter Blackmore said, the company wants to concentrate on selling IP-based technology to telecom companies "in rapidly growing economies" where there are "low levels of competitive saturation."
Chief financial officer/executive VP Fran Barton said the divestiture would "remove PCD's single-digit margins" from the company's balance sheet and produce fiscal 2008 margins in the high 20 percent range.
The sale also relieves UTStarcom of PCD's working capital "spikes and troughs" and enables the company to focus on "growth areas more likely to provide value to shareholders."
Annual handset sales by UTStarcom to PCD will be in the $200 million range, he said.
Philip Christopher, president of UTStarcom's personal communications division, said the change would offer new flexibility. "Operating as a stand-alone business will afford the new company greater distribution and financial flexibility and better positions us to capitalize on emerging market trends and strategic growth opportunities." PCD "will continue distributing handsets and accessories throughout North America," he said, "and we remain focused on providing our current manufacturing partners and carrier customers outstanding support and service."