Ericsson buys Marconi for £1.2bn sterling

25 Oct 2005

It emerged this morning that Swedish communications giant Ericsson beat Alcatel and Siemens in a battle to buy UK communications firm Marconi in a deal worth around £1.2bn sterling.

Ericsson will buy the Marconi trademark as well as various equipment operations. The remainder of Marconi not being acquired by Ericsson will continue to operate independently as a telecoms services provider or carrier.

Marconi, which was established by Guglielmo Marconi in 1897 who went on to transmit the world’s first trans-Atlantic signal in 1901, has been seeking a buyer since it was left out of BT Group’s £10bn sterling next-generation network plans. Marconi currently employs 9,000 people worldwide. More than 2,000 staff will be retained in the division not being acquired by Ericsson. This division will be known as Telent.

Ericsson is buying the following business units – optical transmission equipment; broadband access and fixed wireless access; soft switching; data networking and associated businesses in the US; non-UK services businesses including value-added services activities in the Middle East and wireless software services.

These businesses account for about 75pc of Marconi’s revenues, which in the most recent full financial year (to March 31 2005) were £1.27bn sterling. Ericsson says the deal will add £1bn sterling to its annual revenues, and that the acquisition will not impact its earnings in 2006 before adding to net income in 2007.

The deal includes an initial contribution of £185m sterling to protect 69,000 members of Marconi’s UK pension plan, which has a large deficit.

The Marconi division not being acquired by BT will be left with a cash balance of £275m sterling, as well as responsibility for Marconi’s pension deficit.

In addition to the £185m sterling, a further £490m will be left in an escrow account to take care of future pension liabilities. After the pension problem has been resolved, Marconi says it plans to return 275p a share to investors by the first quarter of 2006.

According to Ericsson, the strategic advantages of the deal include enabling it to expand its business in the market for converging and switched mobile communications such as internet protocol telephony.

In a statement Carl-Henric Svanberg, president and CEO of Ericsson, said: “The acquisition of the Marconi businesses has a compelling strategic logic and is a robust financial case. As fixed and mobile services converge, our customers will substantially benefit from this powerful combination.”

Svanberg continued: “Ericsson and Marconi know each other well and have had a successful partnership for more than 10 years. We bring together two pioneering telecom companies with a combined heritage of more than two centuries in the industry.

“Both companies have a rich history of innovation that has brought many of the technologies to market that are commonplace in our lives today,” he said.

By John Kennedy