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Ericsson Buys Out Rival for $2.1B, 1,000 Job Cuts Loom
Oct 2005
STOCKHOLM, Sweden, Oct. 25 -- Swedish wireless telecom giant Ericsson today announced that it is buying approximately 75 percent of Marconi Corp. plc's telecommunications business -- including Marconi's name -- for $2.1 billion in cash. Industry analysts say the deal effectively turns the British telecom pioneer into a small local services business.

Guglielmo Marconi sent the first wireless message over 100 years ago, starting an industrial era with the first wireless telegraph and signal company in 1897. Marconi has a long history as a designer, manufacturer and supplier of telecommunications and information technology equipment and services. The majority of its operations are in the UK, Italy, Germany and the US and its headquarters are in London.

In addition to the company's research arm, brand names, patents and trademarks, Ericsson will acquire Marconi's network equipment business, including optical networking, broadband access, data networks, microwave radio and next-generation switching. It is also buying Marconi's US-based data networking business. These businesses account for approximately 75 percent of Marconi's revenues.

Marconi had reportedly been looking for a buyer since April, when it lost out on a $19 billion network upgrade contract with British Telecommunications' BT Group plc, a communications company with 20 million customers. BT is Marconi's largest customer and accounted for 25 percent of its continuing operations sales for fiscal 2005, which ended in March, according to the company's annual report. Marconi CEO Mike Parton has denied that the failure to win BT's contract was the reason for today's sale.

According to an Ericsson press release, Marconi, which will be renamed Telent plc, will have a new business focus as a services provider to telecommunications and enterprise customers, including Ericsson. Marconi will retain its UK pension plan and its net cash as of Dec. 31, 2005, which, as of Sept. 30, amounted to $491 million. Marconi is proposing to return a significant amount of the available proceeds from the transaction to its shareholders.

At a press conference today, Ericsson CEO Carl-Henric Svanberg said 15 to 20 percent of Marconi employees could be affected by the buyout. Svanberg said, "When it comes to jobs in the UK, it is clear we have acquired Marconi for its abilities, products and competence and they will bring skills and values to us. But it is clear that with a business that is running at a loss, restructuring is necessary. Of course if we didn't do that we couldn't get the profitability, then we couldn't secure the long-term prospects. We can't get into any particular numbers. We have said 15 to 20 percent of the entire workforce that we take over could be eventually affected."

That would mean approximately 1,000 of Marconi's estimated 10,000 employees. Of the remainder, more than 6,000 are expected to move to Ericsson and the more than 2,000 will work for Telent. According to its annual report, in March 2005, the company had 11,000 employees: 4,000 in the UK, 4,000 in the rest of Europe, 2,000 in North America and 1,000 in Africa, Asia and Australia. The company had planned to eliminate 800 positions this year in a corporate restructuring.

The acquisition requires approval from Marconi's shareholders and clearance from the relevant competition and other regulatory authorities, including the European Commission. The Marconi board is expected to vote in favor of the transaction, which is expected to be completed by the end of the year.

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