Ericsson wins Nortel's LTE & CDMA business with $US1.13b bid

Stuart Corner
Saturday, 25 July 2009 11:25

IT Industry - Strategy

Ericsson has won the auction for Nortel's LTE and CDMA assets for $US1.13b, 74 percent above the offer from the initial bidder, Nokia Siemens Networks.

Nortel announced last month a $US650m 'stalking horse' bid for the assets from Nokia Siemens under which around 2,500 Nortel Employees would transfer to Nokia Siemens. These employees will no be offered positions with Ericsson.

Ericsson will purchase Nortel's CDMA business, the second largest supplier of CDMA infrastructure in the world, and substantially all of Nortel's LTE access assets. Nortel said that while the auction result was "a significant step in the overall sale process, it is not the final step," and Nortel will "work diligently with Ericsson to close the sale later this year." It will seek Canadian and US court approvals of the proposed sale agreement at a joint hearing on July 28.

Ericsson said the acquisition would significantly expand its footprint in North America, particularly as the region is emerging as an early adopter of LTE technology. "Acquiring Nortel's North American CDMA business allows us to serve this important region better as we build relationships for the future migration to LTE. Furthermore, by adding some 2,500 highly skilled employees, of which about 400 are focused on LTE research and development, Ericsson reinforces and expands a long-term commitment to North America," said Carl-Henric Svanberg, president and CEO of Ericsson.

"This deal, along with our recently announced Sprint service agreement, truly positions Ericsson as a leading telecoms supplier in North America."
 
The agreement includes CDMA supply contracts with several major North American operators: Verizon, Sprint, US Cellular, Bell Canada and Leap, as well as LTE assets, certain patents and patent licenses relating to CDMA and LTE. Nortel's North American CDMA operations generated approximately $US2.0b in 2008, with "robust profitability from a good product mix, which includes a significant amount of services," according to Ericsson.

This is not far short of Ericsson's entire business North American which generated sales of $US2.7b in 2008, mainly from GSM and WCDMA equipment and associated services. When coupled with the recently announced Sprint services agreement, the acquisition will make North America the largest region within Ericsson encompassing some 14,000 employees.
 
Ericsson said it expected the acquisition to have a positive effect on earnings within a year of closing. Magnus Mandersson, presently head of Ericsson Northern Europe, has been appointed president of Ericsson CDMA operations and Richard Lowe from Nortel, has been named COO.