Ericsson buying Vonage for $6.2 billion

Smartphone maker Ericsson is buying cloud company Vonage for $6.2 billion in cash to become one of the top providers of communication services, Ericsson said on Tuesday.

The companies said they will market Vonage as an extension of Ericsson’s unified communications (UC) platform that also provides services such as group chat, voice and video.

“We see significant synergy opportunities, both from an operational and capital efficiency standpoint,” Ericsson chief operating officer Hans Vestberg said in a statement.

“Our joint UC product vision and go-to-market approach aligns well with Vonage’s strategy. This acquisition is a good example of the use of technology to unlock new business opportunities in the telecom industry.”

Ericsson offered $12.50 per Vonage share, valuing the company at $6.2 billion, and expects to fund the deal with a combination of cash on hand and a term loan.

Ericsson’s shares ended up 3.4 percent at 9.20 kronor after rising as much as 6.2 percent. Vonage’s shares, which closed 8.8 percent higher on Monday, soared 42.5 percent to $12.62.

The deal represents Vonage’s biggest transaction since it acquired messaging provider Level 3 Communications Inc in 2016 for $1.2 billion.

As with that deal, Vonage is expected to add to Ericsson’s earnings in 2020. Vonage expects the transaction to have a neutral to modestly positive impact on its adjusted diluted earnings per share.

Funding of the deal will not require any equity offerings or bank financing, though the transaction would increase Ericsson’s leverage, Vestberg said in the statement.

The acquisition is expected to close by the end of the second quarter.

Allen & Co LLC advised Ericsson and Credit Suisse Group AG advised Vonage, according to a regulatory filing on Monday.

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