Ericsson to pay $6bn for cloud-base services group Vonage
Ericsson is paying $6.2bn in cash for cloud-based services group Vonage as the Swedish telecoms equipment maker aims to increase its offering for companies and developers.
The acquisition, Ericsson’s biggest 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 crackdown on rival Huawei.
Vonage, a pioneer of internet telephony in the US, had a market value of about $3.6bn in September before activist investor Jana Partners started agitating for it to sell itself or break up.
Ericsson said it would pay $21 in cash per share, a premium of 28 per cent over Vonage’s closing price on Friday.
Ericsson is looking to move into the enterprise business, in which developers create services on top of telecoms networks, after seeing more value being created by companies such as Uber than by itself and other equipment makers.
Vonage’s cloud-based platform has 120,000 customers and serves 1m developers, allowing Ericsson to tap a bigger enterprise audience than it currently has. The Swedish group is hoping to bring the faster speeds and capabilities of its 5G networks to business customers to create an open innovation platform for telecoms operators, developers, and businesses.
“Vonage gives us a platform to help our customers monetise the investments in the network, benefiting developers and businesses,” said Borje Ekholm, Ericsson’s chief executive. “Imagine putting the power and capabilities of 5G, the biggest global innovation platform, at the fingertips of developers.”
Ericsson, which said the deal would be financed through its existing cash pool, said it stuck by its financial targets including an operating profit margin of 12-14 per cent next year, excluding Vonage. Completion of the deal is subject to regulatory approval and is expected in the first half of next year.
The Swedish group said it expected revenue synergies of about $400m and some cost efficiencies, while the deal should be accretive to adjusted earnings per share and free cash flow by 2024.
Vonage, which had sales of $1.4bn in the year to the end of September, tried to sell its legacy consumer business but abandoned the sale in February.