Telecommunications company Ericsson will acquire cloud-based communications company Vonage for $6.2 billion in a deal that will expand Ericsson’s global presence in the wireless business, while increasing its offerings to existing customers.
Telefonaktiebolaget LM Ericsson (Nasdaq: ERIC) announced on November 22 that it is set to acquire Vonage Holdings Corp. (Nasdaq: VG) in a strategic move to expand its wireless presence and global broadband offerings, building on its acquisition of Wireless WAN Edge 4G and 5G solutions leader Cradlepoint for $1.1 billion last year.
Pursuant to the agreement, Ericsson will acquire Vonage for $21 per share cash, totaling approximately $6.2 billion, representing a premium 28% consideration to Vonage’s closing share price of $16.37 on November 19 and a premium of 34% to the volume-weighted average share price over the past three months of $15.71. The deal is anticipated to be accretive to Ericsson’s EPS and free cash flow before the M&A starting in 2024.
As noted in the filings, Vonage’s presence in the Communications Platform as a Service (CPaaS) market will give Ericsson the “opportunity to access a complementary, substantial and high growth segment.” By 2025, the CPaaS market is expected to reach $22 billion with 30% annual growth. Furthermore, according to Ericsson, its 5G market position will “provide access to the developing space for open-network APIs.” This will also benefit consumers and investors.
The companies noted that Ericsson’s network and expertise and Vonage’s customer base and developer network will allow for innovation, such as “accelerating enterprise digitalization and developing advanced APIs made possible by 5G,” among other things.
“The core of our strategy is to build leading mobile networks through technology leadership,” Brje Ekholm, President and CEO of Ericsson, said in a press release. “Vonage gives us a platform to help our customers monetize the investments in the network, benefitting developers and businesses. Imagine putting the power and capabilities of 5G, the biggest global innovation platform, at the fingertips of developers. Then back it with Vonage’s advanced capabilities, in a world of 8 billion connected devices. Today we are making that possible.”
“The convergence of the internet, mobility, the cloud and powerful 5G networks are forming the digital transformation and intelligent communications wave, which is driving a secular change in the way businesses operate,” Rory Read, CEO of Vonage, said in a press release. “The combination of our two companies offers exciting opportunities for customers, partners, developers and team members to capture this next wave.”
Ericsson will finance the transaction through existing cash resources. Furthermore, upon closing Vonage will be a wholly owned subsidiary of Ericsson. Vonage will retain its employees and its CEO Rory Read will join Ericsson’s Executive Team
The reverse triangular merger is expected to close in the first half of 2022, pending Vonage shareholder and regulatory approval, as well as other customary closing conditions. The transaction was already unanimously approved by Vonage’s Board.
Ericsson is represented by Freshfields Bruckhaus Deringer LLP. Vonage is represented by Weil, Gotshal & Manges LLP and its financial advisor is Qatalyst Partners LP.
Prior to the announcement on Friday, November 19, Ericsson and Vonage’s stock were valued at $10.92 and $16.37, respectively. On the day of the announcement, Ericsson’s stock was $10.14 and Vonage’s stock was $20.79. More than a week later, on December 1, Ericsson’s stock was $10.02 and Vonage’s stock was $20.66.
