L.M. Ericsson announced plans to acquire 75 percent of Marconi Corp.’s telecommunication business for $2.24 billion in a move that sets up Ericsson to converge its wireless and wireline networks.
“The acquisition of the Marconi businesses has a compelling strategic logic and is a robust financial case,” said Carl-Henric Svanberg, president and chief executive of Ericsson. “As fixed and mobile services converge, our customers will substantially benefit from this powerful combination.”
In the deal, Ericsson will acquire Marconi’s telecom equipment assets, including DSL, softswitch and optical products, along with the Marconi trademark, associated brand names and intellectual property. According to Technology Business Research Inc., Ericsson’s bottom line will get a $1.77 billion revenue boost from the deal.
TBR noted that the deal allows Ericsson to acquire the bulk of Marconi’s assets without taking responsibility for a pension plan held by some 69,000 Marconi employees. TBR said the pension plan will be maintained by the remainder of the company, which will be renamed telent plc. Telent will retain Marconi’s U.K. services business, valued at $594 million with net annual earnings of $65.4 million. In addition, telent will be Ericsson’s preferred U.K. telecommunications services provider.
Marconi said it will retain its net cash as of Dec. 31, 2005, and that it expects shareholders to receive $4.46 to $5.56 per share in cash in the first quarter of next year.
In a telephone interview with RCR Wireless News, Svanberg said that acquiring Marconi’s network assets will fill gaps in Ericsson’s trunk-radio and optical networks. Svanberg also said that he expects Ericsson to employ about 6,500 of Marconi’s employees.
Indeed, Marconi stated that of its 9,121 employees, 357 are expected to leave as a result of headcount reductions announced in the United Kingdom earlier this year and 6,671 initially will transfer to Ericsson. Of the 2,093 remaining telent employees, 135 will be based in the Value Added Services business in Germany and 1,958 in the United Kingdom. The company said telent will be reviewing its overhead structure and although no specific proposals are being made right now, the company said, “it is possible that a number of overhead savings will need to be made in the legacy equipment businesses and in telent’s central functions.”
“This acquisition is all about network convergence,” said Jean-Charles Doineau, research director at Ovum. “Buying some of Marconi’s assets, Ericsson complements its product portfolio in areas which will be of a very strategic importance for mobile operators and for convergent network operators, at the same time. And it is not only about the fixed business.”
“Ericsson and Marconi know each other well and have had a successful partnership for over 10 years,” said Svanberg. “We bring together two pioneering telecom companies with a combined heritage of more than two centuries in the industry.”
TBR said the addition of Marconi’s portfolio effectively doubles the size of Ericsson’s fixed networks business. The firm said the move again makes Ericsson a significant competitor to Alcatel Corp., Siemens AG, Huawei Technologies Co. Ltd., Nortel Networks Corp. and Lucent Technologies Inc. across fixed and mobile product segments.
In other Ericsson news, the company described its third-quarter results as solid, reporting a net profit of $672.8 million. The number is a 22-percent increase from results a year ago when the company reported a net profit of $545.7 million. The company’s third-quarter earnings per share were 4 cents, up 33 percent from last year’s earnings per share of 3 cents.
“Solid is a bit of an understatement here,” said Martin Garner, director of wireless intelligence at Ovum. “These are good results.”
“The market continues to show good development with growth in mobile voice and data, broadband and in emerging markets in general,” said Svanberg. “The 2 billion reported subscriber mark was passed in the quarter and 3 billion should be passed within five years. In parallel, usage is fueled by increased tariff competition and new service offerings.”
