Ericsson Buys Marconi: $2.1B

U.K.'s iconic telecommunications equipment supplier is finally gobbled
up as the British press applauds a surprisingly good deal. Ericsson,
the Swedish telecommunications equipment supplier, announced on
Tuesday it would acquire roughly 75 percent of its British rival
Marconi for $2.1 billion.

Ericsson will acquire Marconi's network products businesses,
including its optical networking, broadband, radio access, and
softswitch units. It will also acquire Marconi's related services and
research arms, along with its trademarks and brand names.

In addition, Ericsson will purchase Marconi's data networking
business based in the United States.

What's left of the old, iconic Marconi will be a small local services
business that will be renamed Telent plc. The new company will gain a
major customer in Ericsson, which passed on buying Telent's assets.

Shares of Ericsson were up $0.79 to $33.71 in recent trading, while
shares of Marconi were up $0.05 to $13.25.

Ericsson will gain a solid presence in the United Kingdom and the
benefit of Marconi's long experience with BT Group, a major Ericsson
customer

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

There will be some overlap between Ericsson and its new Marconi units
so the company expects to shed between 15 to 20 percent of Marconi's
6,500 employees.

Ericsson was one of two players rumored to be sizing up Marconi since
it began dressing itself up for sale back in April after it was shut
out of BT Group's lucrative $19-billion construction of its broadband
network.

Ericsson and Chinese equipment supplier Huawei both showed interest in
Marconi, but Huawei may have stumbled over Marconi's complex pension
liabilities.

As part of the Ericsson deal, Marconi will retain its U.K. pension
plan and its net cash, which amounts to approximately $491 million.

Gaining Scale
"This deal strengthens Ericsson in a number of areas," said Bill
Owens, a London-based vice president of the consulting firm Adventis.
"Marconi just did not have the scale to continue as an independent
business, but they are well-known for solid products, very good R&D,
and technical expertise."

For Ericsson, the acquisition also takes a European competitor out of
the market and adds to the Swedish company's scale as one of the top
global players.

"Marconi now gets the benefit of scale and a true global brand, which
it truly needed," said Mr. Owens.

Marconi's management wowed the British press with the size of the
deal, which was larger than generally expected, according to Mr.
Owens. The trials and tribulations of Marconi, the U.K.'s largest and
most successful telecommunications equipment supplier, have been
playing out very loudly in the U.K press.

"The press is patting [Marconi CEO] Mike Parton on the back for
achieving a good deal. That seemed difficult not too long ago," said
Mr. Owens. "It is a good deal for Marconi's shareholders and most of
its employees."

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