IHS Global Insight Perspective | |
Significance | Ericsson has agreed to acquire Nortel's stake in LG-Nortel for US$242 million. |
Implications | Following the deal, the new joint venture LG-Ericsson will become one of the major telecom players in South Korea. |
Outlook | The deal will not only strengthen Ericsson's position in the Korean market, but also enhance its position for future technology shifts such as LTE. |
Ericsson announced today that it had entered into an agreement to acquire Nortel's majority shareholding (50%+1 share) in LG-Nortel, the joint venture of LG Electronics and Nortel Networks. The transaction is subject to customary regulatory approvals. Ericsson said that it expected the transaction to have a positive effect on its earnings within a year after closing.
"Korea is one of the largest telecom markets with advanced end-user demand of new services. A strengthening of our position through the collaboration with our new partner LG Electronics will enhance our position for future technology shifts such as LTE," said Hans Vestberg, president and CEO of Ericsson.
LG-Nortel was established in 2005 through the contribution by LG Electronics of its telecom systems business and by Nortel of its Korean distribution business. The focus of the joint venture has been to develop and market telecom equipment such as W-CDMA, CDMA, and LTE for telecom service providers in Korea as well as enterprise products and services. In 2009, LG-Nortel generated approximately US$650 million of sales and had 1,300 employees.
Outlook and Implications
- Ericsson Strengthens Position in Korea: The acquisition will significantly expand Ericsson's footprint in the Korean market and provide Ericsson with a well-established sales channel and strong R&D capability in the country. Furthermore, the acquisition will provide Ericsson with an industrial base and the ability to build new customer relationships. The joint venture includes important contracts with Korean operators such as KT, LG Telecom, and SK Telecom. In July 2009, Ericsson and the Korean government had agreed to cooperate in growing a green ecosystem based on 4G technology. The competence in LG-Ericsson is expected to contribute to this initiative.
- Sale of Nortel Assets: Ericsson had earlier completed the acquisition of the North American assets of Nortel's GSM business for US$70 million (see United States - Canada: 2 April 2010: Ericsson Completes Nortel GSM Acquisition). Nortel had also sold its optical networking and carrier Ethernet assets to Ciena for US$773.8 million (see World: 23 March 2010: Ciena Completes Nortel Metro Ethernet Acquisition). The Carrier VoIP and Application Solutions business is on-track to be acquired by Genband (see World: 4 March 2010: Nortel CVAS Sale to Genband Gains Court Approvals, Wi-LAN Covets LTE Patents).