Ericsson Acquires Telecom-Gear UnitOf U.K.'s Marconi
By PAUL BECKETT and JASON SINGER
Staff Reporters of THE WALL STREET JOURNAL
October 25, 2005; Page C4
LONDON -- Telefon AB L.M. Ericsson said it will pay £1.2 billion ($2.1 billion) to purchase Marconi Corp.'s telecommunications-network equipment business, a move the big Swedish telecoms supplier hopes will help it compete with global rivals as wireless and traditional telephony converge.
The deal, which was announced Tuesday, also marks the latest turn in a roller-coaster ride for Marconi. The British telecommunications company expanded too aggressively in the late 1990s and was brought to the brink of collapse before re-emerging in a streamlined form. But earlier this year, it lost out in the bidding for a crucial supply contract, calling into question its ability to remain independent.
Ericsson already is one of the world's largest suppliers of telephone-networking equipment to wireless companies. Its business supplying traditional, fixed-line networks is tiny by comparison, representing only a fraction of its total networks revenue.
Marconi's equipment business is principally fixed-line and should boost Ericsson's traditional networks business at a time when big telephone-service providers such as France Télécom SA and Telecom Italia SpA are pushing their wireless and fixed businesses closer together. Ericsson faces stiff competition from Alcatel SA of France, Siemens AG of Germany and Canada's Nortel Networks Corp.
Marconi will retain its network-equipment servicing business, which will be focused on the U.K. market, according to people familiar with the matter. Its shares will continue to trade in London, where they rose 3.7% at 364 pence in early trading. Ericsson climbed 1.5% at 26.6 kronor ($3.34).
One of the biggest issues facing Marconi was how to shore up its employee pension plan. Under terms of the agreement, almost £700 million of the price paid by Ericsson will be dedicated to the pension plan, with some money being contributed directly and close to £500 million being held in escrow for future pension liabilities, people familiar with the matter said.
Marconi was advised by Morgan Stanley, J.P. Morgan Cazenove, and Lazard. Ericsson was advised by Skandinaviska Enskilda Banken.
In May, Marconi said it would review all options after it lost out to rivals in bidding for BT Group PLC's £10 billion network upgrade. BT is the U.K.'s largest fixed-line, or traditional, telephone company and was Marconi's largest customer; Marconi's shares collapsed on the news. Among those that won BT's business was Marconi's Chinese partner, Huawei Technologies Co. of China. Huawei also had been viewed as a potential purchaser of Marconi.
On Tuesday, Marconi said an additional payment of 275 pence an ordinary share will be made to its shareholders, broadly equivalent to its share price on Aug. 5, the day before it confirmed it was in talks to sell the company.
The return of cash, around £577 million, will be made in the first quarter of 2006. |
