Marconi falls to Ericsson

Stuart Corner
Tuesday, 25 October 2005 19:52

IT Industry - Deals

Ericsson has emerged as the buyer of the bulk of Marconi's telecoms business after weeks of speculation in which it, Huawei and, in recent days, Alcatel had been tipped as buyers of the struggling UK company.

Ericsson will acquire assets representing about 75 percent of Marconi's turnover, including: Marconi's optical networking business; broadband and fixed radio access network business; softswitch business; data networking equipment and services businesses; Marconi's relevant telecommunications services activities and the Marconi trademark, associated brand names and intellectual property rights.

Ericsson will pay approximately £1.2 billion in cash. It says the deal will increase its annual sales by around £1.0 billion and make a positive contribution to earnings from 2007.

The company claims that the Marconi businesses "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.

According to Ericsson, "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."

The Marconi company will be renamed 'telent plc' and will continue as a service provider to telecoms operators and to enterprise customers. In the UK it will be Ericsson's preferred services partner.

Telent will retain: the UK telecommunications services business (IC&M); The UK and German value added services (VAS) businesses; The System X product and support business along with the payphones business. (System X is the legacy digital exchange designed by one of Marconi's predecessors, Plessey, for BT and widely deployed throughout the BT network.

Ovum research director, Jean-Charles Doineau commented: "Though dedicated to the fixed market, the pieces [of Marconi] bought by Ericsson also make sense in a mobile environment, and that is why we believe this is a very good acquisition for the company. From Marconi's point of view it is probably the best deal the company could have hoped for. Much of its expertise and R&D resources will move over to Ericsson, the services arm will remain as a separate ongoing interest with £300m in the bank, the pension deficit has been made up and its shareholders will get a fair price. Some job losses will be inevitable, but not on the same scale as might have been expected with some of the other deals that were being talked about. All in all, we believe the merger of the two companies will create a more powerful European competitor."