Ericsson sells defence arm to Saab

Swedish telecoms giant Ericsson is selling its defence arm Ericsson Microwave Systems to aerospace company Saab for 3.8 billion kronor in cash, according to a press release from Ericsson.

The market reported positively to the news, with Ericsson’s B shares rising 0.4 percent on the Stockholm exchange in opening trading on Monday.

Some 1,250 employees will be transferred from Ericsson to Saab through the sale, which will be finalized in September.

Ericsson’s deputy CEO Hans Westberg said that there had been several expressions of interest from other companies in Ericsson Microwave Systems.

“We have had a number of potential buyers and we have taken into consideration both price and the buyers’ possibilities to create a future for the company’s competence and technology. Saab was best in all aspects of this. We therefore feel very satisfied with this process,” he told news agency TT.

The sale includes Ericsson’s 20 percent share in the JAS warplane project, as well as Ericsson’s stakes in Thales, EAW Systems and Ericsson Saab Surveillance Systems. Saab also takes over Ericsson’s stake in Saab Ericsson Space.

“The advanced radar development focusing on defense customers has today less synergies with Ericsson’s core business. As a result of the agreement, we will strengthen our focus on telecommunications,” said Ericsson CEO Carl-Henric Svanberg.

“We are also very confident about the future prospects for the National Security and Public Safety area, which will remain within Ericsson, where the development has just recently started to take off,” Svanberg added.

The expected capital gain of approximately 3 billion kronor is roughly equal to Ericsson’s previously announced restructuring costs after the purchase of Marconi and the company’s restructuring of its workforce, the press release said, concluding that this would lead to a neutral effect on Ericsson’s income.

Saab said that the purchase was being funded using existing cash reserves, and that the payment was expected to be made in September 2006. The purchase is expected to have a positive effect on the company’s profit per share from 2007. This year, the purchase will mean a “slightly reduced” operating profit and profit per share.