Ericsson to buy Marconi assets for £1.2B to strengthen its transmission segment

October 25, 2005

3 Min Read

STOCKHOLM -- Ericsson today announces that it has reached an agreement with Marconi Corporation plc to acquire the parts of Marconi's telecommunications business that are strategically important to Ericsson.

  • The agreement strengthens Ericsson's position in the accelerating transmission segment

  • Expands Ericsson's platform for leadership in next generation converging networks

  • Adds sales of approximately SEK 14.0 b. (GBP 1.0 b.), acquisition price SEK 16.8 b. (GBP 1.2 b.)

  • Will contribute positively to EPS from 2007, neutral effect in 2006

  • Headquarters and certain businesses in UK and Germany are not part of the acquisition

  • Marconi's UK pension plan is not part of the acquisition

Carl-Henric Svanberg, President and CEO of Ericsson, 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."

Building on complementary strengths

Mobile and fixed broadband access is quickly growing throughout the world. Ericsson is leading the build out of mobile broadband and has a strong position also in the new wireline technology. The upgrade to broadband will lead to a massive increase in data traffic. As a consequence, transmission capacity in telecom networks will have to be dramatically increased.

Marconi's competitive transmission offerings, especially in optical systems, will combine with Ericsson's strong microwave radio position and worldwide sales organization to create a solid foundation for growth.

Telecom operators' focus on next generation IP based networks is sharpening. Ericsson is determined to secure a leading position in this fast emerging field. This will require R&D investments as well as bolt-on acquisitions.

Ericsson's fixed network business combined with Marconi's broadband access offering and Marconi's long-standing relationships with leading fixed operators will reinforce Ericsson's market position.

Strategic assets

Ericsson will acquire assets representing about 75 percent of Marconi's turnover:

  • Marconi's optical networking business

  • Marconi's broadband and fixed radio access network business

  • Marconi's softswitch business

  • Marconi's data networking equipment and services businesses

  • Marconi's relevant telecommunications services activities

  • The Marconi trademark, associated brand names and IPR

Ericsson will pay approximately SEK 16.8 b. (GBP 1.2 b.) to Marconi in cash on completion, subject to certain closing adjustments. The acquisition will add roughly SEK 14.0 b. (GBP 1.0 b.) in sales and is expected to have a neutral effect on Ericsson's EPS in 2006 with positive contribution from 2007. Ericsson believes that operating margins in line with Ericsson's corporate average can be achieved in the acquired businesses over time.

The businesses to be acquired had net tangible assets of approximately SEK 1.4 b. (GBP 0.1 b.) at September 30, 2005. The acquisition cost for Ericsson will be allocated mainly to intellectual property rights (brands, trade marks, patents etc.), which are expected to be tax deductible for Ericsson.

Strategic rationale and integration

The Marconi businesses are an excellent fit for Ericsson. The combined customer base will have access to a more comprehensive portfolio of solutions and will also benefit from an expanded R&D capability. The acquisition offers significant cross sales opportunities and expands Ericsson's product offering to mobile operators.

The acquired businesses are generally well aligned with Ericsson's existing operations, making the integration relatively straightforward. Most of the synergies will be gained from efficiency in the supply chain, and reduction of sales, general and administration overheads.

Carl-Henric Svanberg, President and CEO of Ericsson, continued:"Ericsson and Marconi know each other well and have had a successful partnership for over ten years. We bring together two pioneering telecom companies with a combined heritage of more than two centuries in the industry.

Both companies have a rich history of innovation that has brought many of the technologies to market that are commonplace in our lives today. We look forward to welcoming so many of Marconi's talented employees to Ericsson".

Ericsson AB

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