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Ericsson Buys Entrisphere

Ericsson AB (Nasdaq: ERIC) acquired its U.S. GPON partner, Entrisphere Inc. , today for an undisclosed sum, to strengthen its position in the North American FTTH market. (See Ericsson Buys Entrisphere.)

The deal ends months of speculation and comes as no surprise given that Entrisphere was Ericsson's U.S. GPON partner. The Swedish giant has been talking about wanting a slice of the American FTTH market for some time. In February, Ericsson CEO Carl-Henric Svanberg said that he wanted a "fair share" of U.S. GPON business. (See Ericsson: Hungry for PON.)

Ericsson did not disclose how much it paid, but last November Light Reading pointed to a Swedish press report that said Entrisphere would fetch about $290 million. (See Ericsson to Buy Entrisphere?)

As partners, the two companies are competing for AT&T Inc. (NYSE: T)'s FTTH network business. The other contenders are Alcatel-Lucent (NYSE: ALU), Hitachi Telecom (USA) Inc. , Motorola Inc. (NYSE: MOT), and Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA). With such formidable competition, Ericsson reportedly needed more than a partnership with Entrisphere for AT&T to take its GPON offering seriously.

Following the acquisitions of Marconi Corp. plc and Redback Networks Inc. , Entrisphere rounds out the Swedish vendor's broadband product portfolio. Entrisphere has 140 employees. In addition to bidding for AT&T's GPON business with Ericsson, Entrisphere won technical approval from Embarq Corp. (NYSE: EQ) in March to sell equipment for broadband digital carrier loop builds. (See Entrisphere Confirms Sprint Win .)

Ericsson has also been named as a possible buyer of Tellabs in the rumor mill. According to a Light Reading poll in January, Ericsson was believed most likely to purchase Tellabs. (See M&A Speculation.)

But the Entrisphere deal may end such speculation. Prudential Equity analyst Inder Singh says this acquisition reduces the chances of a Tellabs purchase. "Tellabs' main growth areas are edge routing and PON, which Ericsson acquired in Redback and Entrisphere," he says.

Ericsson's Svanberg says further acquisitions in IP infrastructure are "less likely." Instead, acquisitions will be in its new multimedia business. "Absolutely in multimedia," says Svanberg. "You can expect acquisitions there."

— Michelle Donegan, European Editor, Light Reading

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Stevery 12/5/2012 | 3:14:44 PM
re: Ericsson Buys Entrisphere
Congrats to the Entrispherians!
Hope they left something over for you besides carve out...
Scott Raynovich 12/5/2012 | 3:14:44 PM
re: Ericsson Buys Entrisphere excellent. I seem to recall several board monkeys lamabsting Ray LeMaistre for his probing articles on how this could happen.

http://www.lightreading.com/do...
and-there-was-light 12/5/2012 | 3:14:44 PM
re: Ericsson Buys Entrisphere Very hardworking bunch of guys, even for Silicon Valley standards..not mention pretty smart too..they deserve all the success, and good for them!

Pity it didn't work out with an IPO, but Ericsson ain't too bad either.
palaeozoic 12/5/2012 | 3:14:43 PM
re: Ericsson Buys Entrisphere VCs (with at least 2-1 preference) get their money back along with enough to cover their expenses while they held LP money. Mark Floyd gets a pat on the back and a nice bonus check. Employees get the shaft, at lest from an option standpoint. Yes, they can keep their jobs (most of them anyway). But no, dreams of a real estate upgrade are not to be realized.
Stevery 12/5/2012 | 3:14:43 PM
re: Ericsson Buys Entrisphere from what i heard, the employees aren't making anything out of their stocks.

If the deal really closed at $290M, then they should run, not walk, to the door. Carve-outs are never worth it.
canttakemore 12/5/2012 | 3:14:43 PM
re: Ericsson Buys Entrisphere
from what i heard, the employees aren't making anything out of their stocks. 5 years of hard work going down the drain for many of the early engineers.
DarkWriting 12/5/2012 | 3:14:42 PM
re: Ericsson Buys Entrisphere "Board Monkeys"!!!??? That's no way to treat the customer!

At least the employees who already purchased their options might get some of their money back (hopefully better than pennies on the dollar). That is about all you can expect from buyouts these days. If by "run to the door" you mean to quit without having another job, I wouldn't suggest that. I'd make them lay me off but be looking like crazy for another job while I was still there.

DW
Stevery 12/5/2012 | 3:14:41 PM
re: Ericsson Buys Entrisphere If by "run to the door" you mean to quit without having another job, I wouldn't suggest that. I'd make them lay me off

Certainly you can do much more damage to the company from the inside. But I think it's usually a better message to take a walk earlier, because it gets noticed more quickly.

Not walking is pretty much equivalent to letting the newco / VCs know that they have you by the balls and can pull that stunt again and again. Better to nip it in the bud for everyone's sake.

mocelet 12/5/2012 | 3:14:41 PM
re: Ericsson Buys Entrisphere
Considering Occam's $296M market cap and Entrisphere acquisition at $290M, I guess Calix should expect a valuation around $600M for its two new product lines e.g. E-series and F-series. How much would the flagship product line (C-series) be valued at? Additional $500M (with a generous premium), bringing the total value around $1.1B?
leftbehind 12/5/2012 | 3:14:40 PM
re: Ericsson Buys Entrisphere I think the actual answer is what someone is willing to pay - probably not $1.1B. If you think Calix has almost 100% penetration of tier 2-4 carriers it will probably only get valued at market comp which is about 1.2x revenue. Its a tough place to be but maybe some LBO firm likes the cash flow.
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