After receiving clearance from Marconi Corp.’s shareholders and from the European Commission, L.M. Ericsson says it’s ready to complete its $2.24 billion acquisition of Marconi’s key telecom assets, setting up the convergence of Ericsson’s wireless and wireline offerings.
In October, when Ericsson announced plans to acquire 75 percent of Marconi’s telecommunications business, Technology Business Research Inc. said Ericsson’s bottom line would get a $1.77 billion revenue boost from the deal. At the same time, Marconi said it would 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 the deal, Ericsson acquires Marconi’s telecom equipment assets, including DSL, softswitch and optical products, along with the Marconi trademark, associated brand names and intellectual property.
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. The pension plan will be maintained by the remainder of Marconi, 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.
Carl-Henric Svanberg, chief executive of Ericsson, said that acquiring Marconi’s network assets will fill gaps in Ericsson’s trunk-radio and optical networks. Svanberg also said he expects Ericsson to retain about 6,500 Marconi employees.
Indeed, Marconi stated that of its 9,121 employees, 357 are expected to leave as a result of reductions announced earlier this year and that 6,671 employees are expected to 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 Kigdom. The company went on to say that Telent would be reviewing its overhead structure and although no specific proposals were being made at the time, some further reductions are possible.
“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.”
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 Ltd. and Lucent Technologies Inc. across fixed and mobile product segments. The acquisition is expected to take effect Jan. 1.