Denied by Cisco
Cisco, the California-based network equipment manufacturer, has been eyeing up the Swedish telecom technology company Ericsson, as a takeover candidate for the last year, according to Dagens Industri.
The Swedish business daily reported that Ericsson and Cisco announced on Monday that the two companies have entered into a strategic collaboration regarding IP technology. The paper reported however, citing unnamed sources, that Cisco and Ericsson have also been in secret talks for the past year about a possible takeover but have so far been unable to agree. The paper wrote further that Cisco Chairman John Chambers' visit to Stockholm earlier this week was not only to present the IP collaboration but also to discuss the possibility of making an offer for Ericsson. One source commented that Cisco does not wish to make a hostile offer but that this may not always be the case.
The paper wrote that Ericsson's Chairman Leif Johansson is concerned about Cisco's takeover interest and will likely find it difficult to defend Ericsson if an offer is made. A source commented that Johansson defended the UK pharmaceutical company AstraZeneca when it received an offer from American Pfizer but that the AstraZeneca situation was different as the UK company was clearly more valuable as an independent company. The source added that this is not the case for Ericsson as a takeover offer from Cisco will likely be higher than Ericsson's independent value.
The item noted that Ericsson has strong shareholders in the Swedish investment companies, Investor with 21.5% and Industrivarden with 15.3%, and the success of a possible offer will depend very much on them. The paper speculated that Investor will be tougher to convince while there are already indications that Industrivarden might wish to sell its stake. However, to avoid criticism for not ensuring Ericsson remains Swedish, Industrivarden would best sell its stake only if a potential offer is a good one and preferably if Investor also sells.
The paper wrote that Ericsson has a market cap of around SEK 260bn (EUR 27.8bn) while the much larger Cisco is worth SEK 1,200bn (EUR 129bn).
Meanwhile, the paper speculated in a separate piece that there are several reasons why Cisco would wish to acquire Ericsson. The article noted that as the internet, data and telecom integrate further, the companies need to be able to offer its clients both IP and mobile networks. The paper wrote that Chinese Huawei already does and Finnish Nokia and French Alcatel will do once their deal concludes. The item wrote that the strategic collaboration between Cisco and Ericsson will make them a force to be reckoned with in this regard but that partnerships are risky and pointed out Ericsson's failed earlier partnerships with Juniper, HP, Sony and STMicroelectronics. The paper wrote further that Ericsson's shareholders are losing patience with the Swedish company's weak growth, profitability and returns.
However, the paper also speculated that Cisco and Ericsson's collaboration will serve as a poison pill against other possible bidders.
The original articles appeared in print, Pages 6-7.
Dagens Industri