Ericsson Acquires Redback For $2.1 Billion

Swedish communications giant Ericsson  has agreed to purchase telecommunications equipment manufacturer Redback Networks in a deal worth $2.1 billion.

The deal will be done by means of a tender offer for all outstanding shares of Redback  common stock. At $2.1 billion, that puts the purchase price at approximately $25 per share, well above the $21.17 closing price for Redback shares on Tuesday.

Both sides expect the acquisition to be completed in early 2007. Redback, based in San Jose, Calif., will retain its management team and operate as a wholly owned subsidiary of Ericsson, based in Stockholm.

While the Ericsson brand name is most often associated with handsets in the U.S., that’s only one part of the manufacturing giant. Ericsson’s core systems are infrastructure for wireless technologies and updated equipment for broadband services over existing copper lines.

In that regard, Redback makes a good fit. Its primary product offering are routers for broadband customers. Ericsson’s strategy for Redback is to provide new equipment to upgrade their networks and improve services.

“This agreement is about accelerating market growth, integrating IP routing and mobility expertise and shaping the future of next generation networks. Video changes everything about networks today. Redback is the acknowledged technology leader delivering broadband, phone, video and mobility services over Internet-based infrastructures,” said Redback president and CEO Kevin DeNuccio in a statement.

DeNuccio will report directly to a management board chaired by the president and CEO of Ericsson, Carl-Henric Svanberg.

“We believe Redback now will have the global reach and financial resources to accelerate its own routing technology innovation and grow market share faster than our traditional routing competitors,” said Svanberg. “Today’s agreement accelerates Ericsson’s ambition to build leadership in the fast growing broadband and IP services market.”

According to the Yankee Group, the total addressable market for IP edge routing is expected to exceed $5 billion by 2009. In their announcement, Ericsson and Redback said they believe there is market opportunity to upgrade more than two billion wired and wireless users worldwide over the next ten years to all IP-based broadband infrastructures.

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