Ericsson is paying $ 6.2 billion in cash for the cloud-based services group Vonage, as the Swedish telecommunications equipment maker aims to expand its offering to companies and developers.
The acquisition, Ericsson’s largest ever, comes after years of restructuring at the Swedish group and amid pressure over its business in China, as it pays the price for Stockholm’s suppression of rival Huawei.
Vonage, a pioneer of Internet telephony in the US, had a market value of about $ 3.6 billion in September before activist investor Jana Partners began agitating to sell or break itself.
Ericsson said it would pay $ 21 in cash per share, a premium of 28 percent above Vonage’s closing price on Friday.
Ericsson wants to move to the enterprise business, where developers create services on top of telecommunications networks, after seeing more value being created by companies like Uber than by itself and other equipment manufacturers.
Vonage’s cloud-based platform has 120,000 customers and serves 1 million developers, enabling Ericsson to exploit a larger enterprise audience than it currently has. The Swedish group hopes to bring the faster speeds and capabilities of its 5G networks to business customers to create an open innovation platform for telecommunications operators, developers and businesses.
“Vonage gives us a platform to help our customers make money with the investments in the network, which benefit developers and businesses,” said Borje Ekholm, Ericsson’s CEO. “Imagine putting the power and capabilities of 5G, the largest global innovation platform, at the fingertips of developers.”
Ericsson, which said the deal would be funded by its existing cash pool, said it was sticking to its financial targets, including an operating profit margin of 12-14 percent next year, excluding Vonage. Completion of the transaction is subject to regulatory approval and is expected in the first half of next year.
The Swedish group said it expects revenue synergies of around $ 400 million and some cost-effectiveness, while by 2024 the deal should be conducive to adjusted earnings per share and free cash flow.
Vonage, which had sales of $ 1.4 billion in the year to end-September, tried to sell its legacy consumer business, but abandoned the sale in February.