IHS Global Insight Perspective | |
Significance | Ericsson beat rival bids from Nokia Siemens Networks and private equity firm MatlinPatterson. |
Implications | Ericsson will pay US$1.13 billion to acquire the most profitable piece of bankrupt Nortel Networks. |
Outlook | The acquisition will significantly expand Ericsson's footprint in North America, particularly as this region is emerging as an early adopter of LTE technology. |
Following the completion of an auction held on Friday (24 July) in New York (United States), which stretched into the night, Ericsson and Nortel separately announced that Ericsson has entered into an asset purchase agreement to acquire the parts of the Carrier Networks division of Nortel relating to CDMA and LTE technology in North America. The transaction is valued at US$1.13 billion on a cash and debt-free basis and is subject to court and customary regulatory approvals.
The purchase includes important CDMA contracts with North American operators such as Verizon, Sprint, U.S. Cellular, Bell Canada and Leap, as well as LTE assets, certain patents and patent licences relating to CDMA and LTE. Magnus Mandersson, head of Ericsson Northern Europe, will be president of Ericsson's CDMA operations and Richard Lowe of Nortel has been named chief operating officer. According to Lowe, Ericsson plans to keep at least 2,500 jobs in the wireless operations, of which about 400 are focused on LTE research and development.
Ericsson, a late entry in the three-horse race for Nortel's wireless assets, beat Nokia Siemens Networks and private equity firm MatlinPatterson. Last month Nokia Siemens Networks put in a "stalking horse" bid for the assets for US$650 million, followed by a US$725-million bid from MatlinPatterson. BlackBerry maker Research In Motion (RIM) was also interested in the assets, but the company last week complained that Nortel had blocked its US$1.1-billion bid (see World: 21 July 2009: Nortel Signs US$475-mil. Stalking Horse Agreement with Avaya for Enterprise Unit). Nortel said RIM was refusing to comply with common confidentiality provisions that other bidders agreed to follow. RIM asked the Canadian government to intervene in the bankruptcy process, but the government said it would leave the matter to the courts.
Outlook and Implications
The deal will significantly boost Ericsson's presence in North America, strengthening its ability to serve North America's leading wireless operators in the evolution to LTE. Ericsson said Nortel's CDMA operations generated about US$2 billion in 2008, mainly from CDMA equipment and related services. This compares with sales of about US$2.7 billion in Ericsson's North American business in the same year, mainly from GSM and W-CDMA equipment and associated services. When coupled with the recently announced Sprint services agreement, the acquisition makes North America the largest region within Ericsson and encompasses some 14,000 employees. Ericsson expects the transaction to have a positive effect on its earnings within a year of closing (see World: 24 July 2009: Ericsson Q2 Earnings Beat Expectations But Claims Key Mobile Markets are Slowing).