Ericsson will pay $6.2 billion ($34.7 billion) in cash for cloud-based services group Vonage, as the Swedish telecom equipment maker plans to increase its offerings to businesses and developers.
The acquisition, Ericsson’s biggest to date, marks the group’s latest attempt to diversify alongside its core cellular infrastructure business after a failed attempt to break into the media in 2010.
It also comes after years of restructuring and preparing for new 5G networks and amid pressure on its business in China, paying the price for Stockholm’s attack on rival Huawei.
Vonage, a pioneer in Internet telephony in the United States that competes with others like RingCentral, had an approximate market value of US$3.6 billion (R$20.2 billion) in September, before activist investor Jana Partners began agitating for it to sell or split.
Ericsson said it would pay $21 ($117) per share, a 28% premium over Vonage’s closing price on Friday (19).
Ericsson intends to enter the entrepreneurial sector, where developers create services over telecom networks, after it saw more value being created by companies like Uber than by itself and other equipment manufacturers.
Borje Ekholm, Ericsson’s chief executive, said the company wants to help telecom operators get more out of their investments in new networks after seeing other companies like app developers take much of the rewards for past upgrades.
“If you look at the network, significant investments go into them, but there is very limited monetization so far. We want to improve monetization capacity. Network operators are not going to build 5G unless they can monetize it,” he said.
Vonage’s cloud-based platform has 120,000 business customers and serves 1 million developers, enabling Ericsson to tap into a larger business audience than it does today. The Swedish group hopes to bring the increased speeds and capabilities of its 5G networks to business customers, to create an open innovation platform for telecom operators, developers and businesses.
Dean Bubley, founder of Disruptive Analysis, said the acquisition would bolster Ericsson’s exposure to the cloud and enterprise market, but the telecom equipment maker would need to be careful not to scare off its core telecom customers by buying a competing company.
He stated that Ericsson “needs [tecnologia] cloud communications” if you want to compete with Cisco, Microsoft, Zoom, and Twilio.
Ericsson, which said the deal would be financed through existing funds, confirmed its financial targets, which include a 12-14% operating profit margin next year, excluding Vonage. Completion of the deal is subject to regulatory approval and should take place in the first half of next year.
The Swedish group said it expects revenue synergies of approximately $400m (£2.24bn) and some cost efficiencies, while the deal is expected to be added to adjusted earnings per share and free cash flow in 2024.
Vonage, which had sales of $1.4 billion (R$7.8 billion) in the year to the end of September, tried to sell its traditional consumer business but withdrew from the sale in February.
Translated by Luiz Roberto M. Gonçalves
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