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Hon Hai, the world’s largest electronics contract manufacturer, is to take over fellow Taiwanese producer Premier Image Technology in a deal aimed at expanding its lead into the digital camera market.

Hon Hai, which is a leader in computer and mobile phone contract manufacturing, said its board had agreed to pay one of its common shares for every 3.9 Premier shares to acquire Taiwan’s largest digital camera maker by the end of the year.

At Tuesday’s closing prices, that would value the deal at T$28.2bn ($865m). Hon Hai shares closed down by the daily limit of 7 per cent at T$190 on Tuesday, leading a broader selloff in the Taiwan market.

The deal continues Hon Hai’s aggressive strategy of pursuing vertical integration by acquiring companies with strengths in specific market segments.

Hon Hai said in a statement to the Taiwan Stock Exchange the deal would enhance its model of being present in every part of the supply chain and “should positively impact earnings per share”.

Hon Hai, which dominates the worldwide contract manufacturing of components and systems for computers, handsets, game consoles and other electronics products, has yet to build the same position in the mid- and top-end digital camera market.

Premier could help it fill that gap. With T$36.7bn in sales and T$1.6bn in net earnings, the camera maker held a 12 per cent global market share last year. Premier has said it expects this to rise to 17 per cent, with shipments set to grow 58 per cent to 15m units this year.

Japanese companies, which hold the top spot among global camera brands, buy 90 per cent of Premier’s shipments.

Hon Hai has set its sights on this premium segment. Contract manufacturing in the camera market is expected to grow, with the industry’s traditional leaders losing control of key technologies following the transition to digital photography.

Hon Hai is one of Taiwan’s most profitable companies. It reported T$40.8bn in net earnings on T$673.5bn in revenues last year.

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