Ericsson To Pay $2.1 Billion For Most Of U.K.'s Marconi - InformationWeek

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10/25/2005
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Ericsson To Pay $2.1 Billion For Most Of U.K.'s Marconi

The Swedish company is buying most of Marconi’s data networking and associated services, mainly based in the U.S., among other business units.

LONDON — Ericsson has emerged the victor to acquire the majority of the assets of Marconi Corp. plc in a cash deal valued at £1.2 billion ($2.1 billion).

The Swedish group is buying Marconi’s optical transmission equipment and broadband access and fixed wireless access units, its softswitch technology and most of its data networking and associated services, mainly based in the U.S. Also included are non-U.K. service operations.

These activities represent about 75 percent of Marconi's revenues, which in the most recent full financial year (to March 31 2005) were £1.27 billion ($2.24 billion). Ericsson says the deal will add £1 billion ($1.77 billion) to its annual revenues, and that the acquisition will not impact its earnings in 2006 before adding to net income in 2007.

On Tuesday (Oct. 25) Ericsson CEO Carl-Henric Svanberg warned of “significant” job losses following the integration of the Marconi business. Marconi currently employs 6,500 people and the Swedish chief executive said cuts of between 15 and 20 per cent would be “unavoidable” to rationalise the business.

Marconi will retain its U.K. services business, which employs about 2000 and has a turnover of about £330 million ($584 million). It will be renamed Telent plc. and will be Ericsson’s preferred services partner in the U.K.

Marconi has been seeking a buyer since it was left out of BT’s pioneering £10 billion ($17 billion) 21st Century Network upgrade program, announced in April this year. Ericsson won part of the work that Marconi had been bidding for. The deal should help Ericsson as it builds out the intelligent nodes at the heart of the 21CN project.

Soon after the company said it was looking for partners or a sale, and announced several hundred redundancies.

Chinese group Huawei Technologies Co. Ltd. was the first name linked with a possible takeover, since it has a major distribution agreement with Marconi, while Ericsson emerged as a suitor last month. Alcatel was also named recently as a potential bidder.

Svanberg said :"The acquisition of the Marconi businesses has a compelling strategic logic and is a robust financial case. As fixed and mobile services converge, our customers will substantially benefit from this powerful combination."

John Devaney, Marconi chairman, said in a prepared statement: ”We have found a partner that has the scale and global reach to take our equipment business forward in a way that we would not have been able to do alone.”

The price paid includes almost £700 million ($1.2 billion) that the U.K. pensions regulator said any buyer must guarantee to cover the company’s pensions liabilities. Marconi will retain the company's cash balance, which was just under £300 million at the end of March, and will continue to retain liability for the pensions deficit.

Under terms agreed with the pensions regulator, Marconi must commit £200 million to the pension fund immediately after the deal. It must also keep £500 million in an escrow account.

A vote on the deal by Marconi shareholders has been set for December 21, and completion is expected by the end of January 2006.

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