Imation is making changes to its manufacturing strategy, modifying R&D and buying the assets of Memcorp. Approximately 675 positions out of a current worldwide total of 2,070 will be eliminated by mid-2009, the vast majority of which will be in manufacturing operations. The restructuring program is expected to result in $25 million to $30 million in annualized cost eliminations.
Imation is consolidating its grip on the Memorex brand and product distribution. It has entered into a definitive agreement to acquire certain assets of Memcorp Inc. and Memcorp Asia Limited (together known as "Memcorp") from privately held Hopper Radio of Florida, Inc. The cost is around $60 million in cash and notes with a potential further $20 million earn-out over three years depending upon performance.
Memcorp, a U.S.-based consumer electronics marketing and distribution company, had Memorex-branded sales in 2006 of approximately $190 million out of total sales of approximately $285 million, including other branded sales that are not a part of the transaction. Memcorp sells a range of video, audio and home electronics products through retailers in North America. It has been operating under a long-term license agreement for the Memorex brand. Imation will acquire all Memcorp sourcing, marketing and distribution operations, as well as Memcorp's recent three-year agreement with MTV Networks, a division of Viacom International, to design and distribute specialty consumer electronics items under certain of the Nickelodeon brands.
Frank Russomanno, Imation CEO and president, said: ""This acquisition builds on our recent successful acquisition and integration of the Memorex brand, and allows us to gain full control and leverage of the Memorex brand worldwide. Memcorp's product portfolio, global sourcing expertise and creative marketing and licensing capabilities in branded consumer electronics, strengthen and extend the powerful Memorex brand across a variety of products beyond removable media."
The acquisition will expand Imation's Memorex-branded presence at retail, broadening Imation's product portfolio to include Memorex-branded TVs and digital displays, including flat-panel LCDs and digital picture frames, iPod(TM) accessories, radios and MP3 players. The portfolio will also include digital cameras, home theater video and portable DVD players, karaoke systems and office products such as voice recorders and paper shredders.
Approximately 60 Memcorp employees from the company's U.S. and Hong Kong operations are expected to transfer to Imation as part of the acquisition.
Imation will concentrate manufacturing on core tape coating operations to existing plants at Camarillo, California, and Weatherford in Oklahoma. All manufacturing operations and floppy diskette assembly at its Wahpeton, N Dakota, plant will be terminated and the pant exited by mid-2009. It is currently the site of diskette manufacturing, tape converting operations, limited-volume CD-RW optical disc production, machining and plastic part molding.
Dr. Subodh Kulkarni, R&D VP for Imation, said: "Diskettes have been a significant portion of our product portfolio for more than two decades, but they are now only a small, rapidly declining part of the market and they are nearing their end of life. While we added other operations, such as small format optical media and contract manufacture of molded plastic parts, the markets for these products did not materialize to a level to justify their continuation. The decision to exit the Wahpeton plant and to consolidate and outsource converting operations from all of our plants is difficult but necessary as we move forward to optimize our manufacturing strategy."
Imation will consolidate and outsource all converting operations for tape cartridges that are currently spread among the three plants.
Final converting and assembly of the magnetic tapes will be transitioned to an outside company. These finishing operations include the winding of coated magnetic tape into cartridges, final inspection and packaging of the finished tape product.
Russomanno said: "As we continue to see growth in open format tape products with lower gross margins, these difficult but necessary organizational changes are required for Imation to remain competitive in the manufacture of advanced magnetic tape products."
He is referring to LTO, and continued: "Imation is well known and trusted as a leading developer and manufacturer of magnetic tape formats. That will not change. We will continue to focus on delivering the high quality, capacity and performance required for these tape formats by concentrating our magnetic development and manufacturing resources on current and future magnetic tape products."
Imation will reorganize its R&D organization to support an increasing focus on engineering and rapid prototyping of consumer technologies, and in qualification of new products. The restructuring will include the Company's Oakdale, Minnesota, R&D organization, which will be aligned to focus development and engineering resources on key programs in support of future advanced magnetic tape formats and in support of the Company's continued growth and increased focus on consumer digital storage products and accessories.
Russomanno said: "As Imation's portfolio expands into new areas, we need a more focused R&D organization with the skill sets to engineer, prototype and test new consumer technologies and fast-growing product areas like flash media and drives. We are aligning our organization to better address those emerging requirements."
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