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Optical/IP

Ericsson Swoops on Axxessit

Ericsson AB (Nasdaq: ERICY) is to buy loss-making Norwegian multiservice provisioning platform equipment vendor Axxessit (Oslo: AXX) for 330 million Kroner (US$51.3 million) in cash to boost its in-house metro Ethernet capabilities (see Ericsson Makes Bid for Axxessit).

Ericsson will offer NOK28.50 ($4.40) per Axxessit share, a 43.5 percent premium on the average price recorded during the past 10 trading days. The offer will be made formally on July 1, and, if everything goes smoothly for Ericsson, the deal will close before the end of July. The Axxessit board recommends that shareholders accept the offer, "subject to not receiving a higher competing offer for their shares."

The news sent Axxessit's share price soaring by 41 percent to NOK27.90 ($4.31) in morning trading on the Oslo exchange. The company's largest single shareholder is Deutsche Bank AG, which owned 18 percent of the stock at the close of the first quarter this year.

Ericsson's share price was up by less than 1 percent to 24.4 Swedish Kronor ($3.22) on the Stockholm exchange in morning trading.

Ericsson says it's had an OEM relationship with the developer of multiservice provisioning platforms (SDH, Ethernet/IP) and integrated access devices since 2003, and believes now is the right time to own the company's technological know-how. "There's a growth opportunity here. Axxessit is a very R&D-focused company, and this acquisition will improve our prospects," says spokeswoman Ilyana Gusman.

It will also give Ericsson a more rounded Ethernet product proposition for both fixed and wireless operators just as the market for metro Ethernet equipment is taking off (see Infonetics Reports on Metro Ethernet).

In addition, the acquisition comes as Ericsson is experiencing an uptick in sales of its Ethernet-based DSLAMs (see B2 Picks Ericsson for Ethernet DSL, Ericsson Wins Danish DSLAM Deal, and Bayantel Uses Ericsson DSLAMs). It is also aggressively pursuing carriers with fixed/mobile strategies, especially those looking to adopt an IP multimedia subsystem (IMS) architecture (see Ericsson, Broadsoft Snack on Danish).

Gusman adds that the acquisition will not have any impact on any other partnerships, including the long-standing SDH equipment partnership with Marconi Corp. plc (Nasdaq: MRCIY; London: MONI). (See Is Ericsson Exiting Optical?.)

In addition, Ericsson says it intends to maintain all of Axxessit's previous agreements and commitments should the deal go through, including OEM relationships with its partner Cisco Systems Inc. (Nasdaq: CSCO) and even Axxessit's OEM relationship with Ericsson's archrival Nokia Corp. (NYSE: NOK). (See Cisco, Ericsson Join Forces.)

Axxessit chairman Nils Erik Skarsgård says the takeover will allow Ericsson to make a "solid dent in the market for metro Ethernet equipment, and be very helpful in the fixed/mobile equipment market."

He expects all 175 staff -- one third in R&D, another third in product sales and support, and the remainder in manufacturing -- to be retained by Ericsson. "There's no formal decision, but this is not a restructuring case -- this is an up-and-go scenario."

And Skarsgård isn't expecting any other offers for the company. He says the clause about other potential better offers needs to be in the statement because the board doesn't want to tie the shareholders' hands. "The Ericsson offer is a strong industrial solution" for both parties, says the chairman.

Should the deal go through, Ericsson will own a company with more than 70 service provider customers that is growing, but still losing money (see Axxessit Wins SDH Contract).

In 2004 the company lost NOK43 million ($6.7 million) on revenues of NOK150 million ($23.3 million), compared with a loss of NOK44 million ($6.7 million) from revenues of NOK110 million ($17.1 million) in 2003.

Sales in the first quarter of 2005 were NOK40.9 million ($6.3 million), up 18 percent from a year earlier.

— Ray Le Maistre, International News Editor, Light Reading

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