Ericsson to buy out Marconi’s telecom arm

Swedish telecoms equipment major Ericsson has almost finalised a deal to buy out Marconi its UK rival for a sum of £1.2bn ($2.1bn). Following the sale, Marconi’s shareholders will receive 275 pence per share. Earlier, Siemens AG and France’s Alcatel SA had also evinced interest in acquiring Marconi’s telecom arm.

After the sell-out, Marconi will concentrate on its services business and it will be rechristened as Telent Plc. Mike Parton, Marconi’s Chief Executive confessed in August that the company was having talks with unidentified suitors for its possible takeover.

Earlier, it had failed to get into any agreement for a 10 billion-pound contract with its biggest client BT Group Plc. Marconi publicly announced in April that if BT did not select it for its contracts, it would lose out on £50 million.

The buyout, it is opined, will help Ericsson expand its business in the market for converging fixed and mobile communications like IP telephony. It has already established itself as a global leader in sales of mobile equipments to operators the world over.

Chief executive of Ericsson, Carl-Henric Svanberg said: “The acquisition of the Marconi businesses has a compelling strategic logic and is a robust financial case”.

Marconi has 9,000 staff working world over. 2,000 workers of its UK workers will become part of Telent operations.

This deal will see Marconi getting £185 million towards its pension plan. A further £490 million will be kept in an escrow account for the potential benefit of the plan.

Speaking about the deal, Marconi chairman John Devaney said: “Over a period of several years, we have had conversations with a number of potential partners regarding the necessary consolidation in our industry. 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.”

Marconi’s stock market value is 731 million pounds as of date. Formed 119 years ago, Marconi was suggested by Credit Suisse First Boston’s analysts to split itself and then “sell off the parts.” Marconi hit its rock-bottom when its share value was eroded by half in April after BT overlooked it for its network upgrade.