Ericsson buys Britain’s Marconi

Beleaguered UK telecoms firm Marconi Corp PLC this morning confirmed that larger Swedish rival Ericsson AB will acquire most of its businesses for 16.8 billion kronor (£1.2 billion).

The takeover will swell the Swedish group’s workforce by 6,500, and chief executive Carl-Henric Svanberg said “significant” job cuts would be “unavoidable”.

Under the terms of the deal, which has been well flagged in the press, Ericsson will acquire Marconi’s telecoms equipment and international services businesses for around £1.2 billion in cash.

All that will be left of Marconi, which will be renamed Telent PLC and retain its listing on the London Stock Exchange, is a UK-based telecoms service business.

Marconi’s fate was sealed earlier this year when its largest customer, BT Group PLC, left it off the list of key suppliers for a £10 billion re-fit of its network.

Instead of Marconi, BT chose Ericsson to supply the i-node technology that will direct traffic over the new network. Marconi will now become Ericsson’s “preferred partner” to service this contract with the UK’s former monopoly telecoms operator.

“The acquisition of the Marconi businesses has a compelling strategic logic and is a robust financial case,” said Ericsson chief executive Carl-Henric Svanberg.

“Ericsson and Marconi know each other well and have cooperated successfully for more than ten years. We are bringing together two pioneering companies which together have over two hundred years of industrial history behind them,” he added.

However, Carl-Henric Svanberg has already confirmed that there will be job cuts.

“The fact that Marconi’s product businesses are showing break-even or a small loss means there needs to be a significant rationalisation,” said Svanberg on a conference call with reporters.

“In the long term that means restructuring and job cuts; it’s unavoidable.”

When pressed, the chief executive 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.

The Marconi rump will be left with a cash balance of £275 million, as well as responsibility for Marconi’s gaping pension deficit.

There will be a £185 million cash injection to plug the blackhole, with a further £490 million to be left in an escrow account to take care of future pension liabilities that might arise, said Marconi in a statement.

After the pension issue has been addressed, Marconi said it plans to return 275 pence per share to investors in the first quarter of 2006.

Today’s news spells the end of what was once the standard bearer for the UK technology sector.

Under the stewardship of former chief executive Lord Simpson, who changed the company’s name from GEC, Marconi fell foul of a misguided move into telecoms at the end of 1990s.

Bent on transforming GEC/Marconi into a major telecoms player, Simpson borrowed heavily to buy telco equipment assets at the height of the dotcom boom.

This glut of acquisitions and the inevitable retrenchment that followed the pricking of the bubble left Marconi with a pension plan with around 69,000 members.