Dec. 20, 2006

Yesterday, telecom equipment manufacturer Ericsson said it will acquire data networking equipment distributor Redback for $2.1 billion in cash.

Redback and Ericsson said once the transaction is completed, it would give Ericsson Redback's expertise in data-routing technology.

Redback's technology helps ISPs deliver Internet broadband, telephone, television and various other data services over networks using standard infrastructure.

Redback began in 1996 and was a high-flying security in the late '90s, during the dot-com and telecommunications investment bubbles.

It's a direct competitor to Juniper Networks and to larger rival Cisco Systems.

Ericsson will pay $25 in cash for each Redback share, representing an 18 percent premium to Redback's closing stock price of $21.17 on Nasdaq yesterday.

Ericsson said that the cash transaction would be internally funded and boosts its presence in the fast-growing market of next-generation IP, or Internet Protocol networks.

Ericsson also said Redback would help telecommunications carriers reduce costs and upgrade their networks.

Overall, Redback will keep its current management team and will operate as a wholly owned subsidiary of Ericsson.

According to market research firm Yankee Group, the total market for IP edge routing (the market in which Redback principally competes) is forecast to top $5 billion in two years.

Ericsson and Redback said they believe there is an opportunity to upgrade more than 2 billion wired and wireless users globally over the next 10 years to IP-based broadband networks and infrastructures.

The two companies said the proposed acquisition is subject to customary closing conditions and regulatory approvals, and is expected to close early next year.

In extended trade after news of the proposed acquisition, shares of Redback rose 17 percent to $24.80.

Shares of Ericsson increased 45 cents, or 1.1 percent, to close at $40.62 on Nasdaq yesterday, before the planned deal was announced publicly.

At $25 per share, Redback is valued at 39 times its projected 2007 earnings per share before items, according to estimates compiled by Reuters Estimates.

Rival Juniper trades at 22 times its projected 2007 profits per share before items.

Citigroup and SEB Enskilda acted as Ericsson's advisors in the transaction, and UBS advised Redback, the companies said.

Source: CNN Money