Ericsson to buy cloud-based US firm Vonage
Swedish company’s push into cloud services comes as its earnings have been hampered by lost business in China and component shortages
Ericsson has agreed to buy Vonage Holdings in the US for an equity value of $5.3bn in a bid to build its presence in cloud communications services.
The takeover, if successful, will be Ericsson’s largest deal, after its £1.2bn acquisition for Telent’s telecom equipment assets in 2005, according to data compiled by Bloomberg.
Ericsson’s shares fell as much as 4.3% in early trading on Monday.
The Swedish telecommunications group will pay $21 a share for Vonage using existing cash, according to a statement on Monday. The offer represents an enterprise value of about $6.2bn, the company said.
The price Ericsson is paying for Vonage is “quite steep”, credit analysts at Danske Bank said in a client note.
Ericsson’s push into cloud-based services comes as its earnings have been hampered by lost business in China and component shortages from a global supply-chain squeeze. The company said on Monday that it remains fully committed to its long-term Ebita margin target of 15-18%.
“Vonage gives us a platform to help our customers monetise the investments in the network, benefiting developers and businesses,” Ericsson CEO Borje Ekholm said.
The US company’s cloud-based communications platform accounts for 80% of its $1.4bn annual revenue and enables developers to embed services such as messaging or video into their products. That customer base and developer community is seen as a key draw for Ericsson.
Ericsson’s activist owner Cevian Capital said it welcomed the company’s push to accelerate growth within the enterprise segment, enabling a “meaningful re-rating opportunity”.
Vonage itself had been under pressure from activist investor Jana Partners and was working with advisers to run a strategic review of the business. That review included the possibility of a full sale of the company, Bloomberg reported in September.
Bloomberg News. More stories like this are available on bloomberg.com
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