British telecoms equipment maker Marconi, a victim of the high-tech bubble, agreed on Tuesday to sell most of its assets to Swedish rival Ericsson for about £1,2-billion ($2,12-billion) in cash.
Ericsson, the world’s biggest supplier of mobile telecommunication systems, said later that it planned to cut up to a fifth of the 6 500-strong workforce it would inherit, implying 1 300 job losses.
Marconi, once a heavyweight of British industry and the defence industry, has been forced to cut thousands of jobs since 2002 after running up huge losses on an ill-fated spending spree in the United States during the telecoms boom.
The company’s roots date to 1885 when Guglielmo Marconi, the son of an Italian landowner and Irish mother, transmitted a signal over a distance of about two kilometres.
Tuesday’s deal, which had been widely rumoured in the British press, would see Ericsson acquire Marconi’s trademark as well as its telecoms equipment and international services businesses.
That would leave Marconi, to be renamed Telent, as a Britain-based telecoms service business. Ericsson would meanwhile also gain Marconi’s broadband access technology as well as its long-standing relationships with operators.
“The Marconi businesses are an excellent fit for Ericsson,” the Swedish company said. The acquisition offers significant cross sales opportunities and expands Ericsson’s product offering to mobile operators.”
Marconi’s share price rose 4,13% to 365,5 pence in late afternoon deals, while London’s FTSE 100 index of leading shares was 0,21% lower at 5 196,90 points.
Ericsson climbed 1,53% to 26,5 Swedish kronor in Stockholm.
Investors were to be given 275 pence per share some time in the first quarter of 2006, following completion of the deal.
“The board of Marconi Corporation plc today [Tuesday] announces that it has agreed the disposal of the majority of Marconi’s telecommunications equipment and international services businesses to Ericsson,” said a statement released to the London Stock Exchange.
“Ericsson will pay approximately £1 200-million to Marconi in cash for the disposed business,” it added.
Marconi’s, which grew out of the defence group GEC, had its fate sealed earlier this year when it failed to win a crucial contract from British telecoms company BT Group — its biggest customer.
Ericsson’s chief executive Carl-Henric Svanberg said on Tuesday that “significant” job cuts would occur following the Marconi purchase.
“The fact that Marconi’s product businesses are showing break-even or a small loss means there needs to be a significant rationalisation,” he said in a conference call to reporters.
“In the long term that means restructuring and job cuts. It’s unavoidable.”
Svanberg said job cuts would be in the order of “15-20% ” of the 6 500 people currently employed in the Marconi businesses Ericsson has agreed to buy.
Ericsson’s takeover includes an initial contribution of £185-million to ensure that the rights of 69 000 members of Marconi’s Britain pension plan are protected. About 2 000 Britain-based staff were set to be retained by Telent.
“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 chairman John Devaney said.
The deal was dependent on the approval of Marconi shareholders at a meeting in mid-December. – AFP