Ericsson is reportedly set to discuss how to respond to Nokia’s US$16.6bn acquisition of Alcatel-Lucent at a strategy meeting next month. Potential targets could be US equipment makers Juniper Networks and Ciena Corporation, Bernstein analyst Pierre…
Ericsson is reportedly set to discuss how to respond to Nokia’s US$16.6bn acquisition of Alcatel-Lucent at a strategy meeting next month.
Potential targets could be US equipment makers Juniper Networks and Ciena Corporation, Bernstein analyst Pierre Ferragu has suggested.
The Swedish vendor has become open to larger M&A transactions after years of making small deals, according to Bloomberg which cited people familiar with the matter.
Ericsson’s chairman Leif Johansson was recently quoted saying he wouldn’t “exclude” the possibility of the group doing a larger deal, but suggested there weren’t many targets available.
In a recently-published note, Ferragu wrote that Ericsson has a strong balance sheet with around US$6bn in cash and its management has been put under pressure to spend. An acquisition of Juniper, which specialises in IP routing, could unlock as much as US$400m in cost synergies and be attractive to shareholders in both companies, he said.
Activist investor Elliott Management has four of the 10 seats on Ericsson’s board and would support a deal at a reasonable premium, Ferragu suggested.
Juniper’s share price has risen more than 3% today to give it a share price of US$27.89 at the time of writing, giving it a market capitalisation just shy of US$11bn. A tie-up with Juniper would give Ericsson a market share of 29% across wireless, wireline access, IP routing and optics, higher than the 26% the merged Nokia/Alcatel-Lucent will have, Ferragu said.
However, the analyst added that there may be some resistance in Ericsson’s executive team to doing a deal. One person cited in the Bloomberg report said Ericsson “isn’t confident that Juniper’s technology is what it needs in an increasingly software-dominated industry”.
Bernstein also suggested Ciena, which specialises in making fibre-optic networks, as another target if Ericsson wants to diversify into that part of the equipment market.
Ericsson declined to comment.
