Marconi and Ericsson sign purchase agreement

Nov. 1, 2005
After months of speculation on the company’s future, the Board of Marconi Corporation plc has agreed a deal with Swedish telecom giant Eriksson (Stockholm, Sweden).

LONDON, ENGLAND - After months of speculation on the company’s future, the Board of Marconi Corporation plc has agreed a deal with Swedish telecom giant Eriksson (Stockholm, Sweden).

Marconi saw its share price plummet in April when it failed to land a critical contract with BT, its largest customer. Business rival Ericsson was one of eight companies selected by BT in that same deal. Ericsson will now acquire assets representing about 75% of Marconi’s turnover, including the Marconi trademark, associated brand names, and intellectual property rights. The current deal values Marconi’s telecommunications equipment and international services businesses, which are included in the deal, at a generous £1.2 billion (US$2.14 billion), about 1.3 times the revenues of the businesses for the financial year ended March 31, 2005. In addition, Marconi will retain its net cash as of December 31, 2005-which, as of September 30, 2005, amounted to £275 million (US$490 million).

If the deal is approved, Marconi will be renamed “telent plc” and will operate as a services provider to telecommunications operators and enterprise customers. It is agreed that telent will be Ericsson’s preferred services partner in the UK.

“Over a period of several years we have had conversations with a number of potential partners regarding the necessary consolidation in our industry,” said John Devaney, chairman of Marconi. “In Ericsson we have found a partner that has the scale and global reach to take our equipment business forward in a way that we would not have been able to do alone. The proposed Ericsson transaction also enables us to take steps towards resolving our UK Pension Plan issue whilst protecting the benefits of the approximately 69,000 members of our Plan.”

Ericsson see the Marconi businesses as a good fit with its operations, claiming that the acquisition offers significant cross sales opportunities and expands Ericsson’s product offering to mobile operators. The company also says it is looking for extra efficiencies and overhead reductions. Ericsson President and CEO, Carl-Henric Svanberg, has referred to “rationalization,” which inevitably means job losses. He is reported as saying that job cuts would be in the order of 15%-20% of the 6500 people currently employed in the Marconi businesses that his company is acquiring.

“We bring together two pioneering telecom companies with a combined heritage of more than two centuries in the industry,” Svanberg said. “Both companies have a rich history of innovation that has brought many of the technologies to market that are commonplace in our lives today.”

The Marconi Ericsson deal is now conditional on the approval of Marconi shareholders and clearance from certain competition authorities. Completion is expected to take place by the end of January 2006, although the effective date of completion is January 1, 2006, under the Memorandum of Agreement.

About the Author

Bridget Marx | Contributing Editor, UK

Bridget Marx was Contributing Editor, UK for Laser Focus World.

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