Vonage to sell itself to Ericsson for $6.2bn in cash

Danish telecoms giant to strengthen position in mobile cloud services business

Ericsson, the world’s second-largest mobile network equipment maker, is buying Vonage for $6.2bn (£4.6bn) in cash in a bid to boost its position in the mobile cloud services business.

The world’s biggest telecoms gear maker, Nokia, announced its own cash offer for Vonage in December, valued at $6.15bn, but Vonage announced on Thursday that it is recommending Ericsson’s higher bid.

Ericsson said that its $11.80 per Vonage share offer represented a 21% premium to Vonage’s pre-announcement share price and would come with a net $1.1bn in the form of convertible notes. The deal, set to close in the second half of the year, is subject to approval by Vonage shareholders.

“The combination of Vonage and Ericsson will allow us to step up our game in the rapidly evolving global communications services market,” said Ericsson’s chief executive, Borje Ekholm.

“By combining Ericsson’s mission-critical networks and cloud services with Vonage’s leading mobile cloud solutions, we are acquiring the largest and most sophisticated portfolio of cloud services and technologies in the market, which we believe will accelerate and enhance our position in mobile cloud.”

The deal is only the second major acquisition by Ericsson in the past three years, after it paid $1.8bn for NetLogic Microsystems in 2015.

Vonage has been seeking a buyer after first confirming that it was in “advanced discussions” with two suitors in February 2017. At the time, Vonage’s board said its review was still ongoing.

Vonage, which provides paid-for mobile phone services for consumers and small businesses, said that its board unanimously approved the sale to Ericsson.

Vonage said that it expects to incur after-tax one-time transaction costs of approximately $40m and said Ericsson will assume all Vonage’s outstanding debt and obligations, reducing Vonage’s debt by more than $350m, and acquire all Vonage convertible debt notes, which will drop to zero.

Vonage operates two business segments: Consumer and Business.

All of Vonage’s approximately $1.7bn in net cash is expected to remain as part of Vonage’s balance sheet following the sale to Ericsson.

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