Swedish networking and telecom company Ericsson Monday announced its agreement to buy Vonage Holdings Corp., a cloud-based communications provider, for about $6.2 billion.
Ericsson further said it continues with its previously announced financial targets, including long-term EBITA margins of 15 percent-18 percent. The company has a 2022 target EBIT margin of 12-14 percent for the Group excluding Vonage.
Ericsson shares were losing around 4 percent in Swedish trading as well as in pre-market activity on Nasdaq. Meanwhile, Vonage shares were gaining around 27 percent in pre-market activity on Nasdaq.
In the deal, the per share price is $21, which represents a premium of 28 percent to Vonage’s closing share price on November 19 of $16.37 per share.
The transaction is expected to be accretive to earnings per share, excluding non-cash amortization impacts, and free cash flow before M&A from 2024 onwards.
Vonage Board of Directors unanimously approved the deal, and recommends that its shareholders approve and adopt the merger agreement.
Completion of the transaction, subject to Vonage shareholder approval, regulatory approvals and other customary conditions, is expected within the first half of 2022.
The acquisition will be financed through its existing cash resources.
On completion of the deal, Vonage will become a subsidiary of Ericsson and will continue to operate under its existing name. It will be reported as a separate segment in Ericsson accounts.
Holmdel, New Jersey -based Vonage’s sales were $1.4 billion in the 12-month period to September 30, 2021, and adjusted EBITDA margin was 14 percent. It has 2,200 employees with operations throughout the United States, EMEA and APAC.
Vonage Communications Platform or VCP serves over 120,000 customers and more than one million registered developers globally. VCP accounts for around 80 percent of Vonage’s current revenues.
Following the acquisition, Vonage’s employees will remain with the company and the Vonage CEO Rory Read will join the Executive Team of Ericsson, reporting to CEO, Börje Ekholm.
Ericsson said the acquisition underlines its strategy to expand its presence in wireless enterprise, offering existing customers an increased share of a market valued at $700 billion by 2030.
The transaction would deliver near-term revenue synergy opportunities. Ericsson also expects to achieve some cost efficiencies following completion of the transaction.
In Sweden, Ericsson Class B shares were trading at 94.54 Swiss kronor, down 3.74 percent. In pre-market on Nasdaq, the shares were trading at $10.49, down 3.94 percent.
In pre-market on Nasdaq, Vonage shares were trading at $20.69, up 26.39 percent.
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