Swedish telecommunications equipment maker Ericsson AB will buy data networking equipment vendor Redback Networks Inc. for $2.1 billion translating to $25 per share in cash.
Redback will retain its current management and expand its routing operations globally as an independent, wholly owned subsidiary of Ericsson. The transaction would give Ericsson Redback's expertise in data-routing technology that helps service providers deliver broadband, telephone, television and services over networks using standard internet infrastructure, San Jose, California-based Redback and Sweden's Ericsson said.
In accordance with the acquisition, Redback plans to accelerate its product development and continue to expand its operations to meet growing customer demands for next generation broadband networks. Redback will continue to focus on video and mobility routing markets to leapfrog its traditional competitors.
A rival to Juniper Networks and Cisco Systems, Redback, which was founded in 1996, manages 50 million broadband connections for 15 of the top 20 telephone carriers worldwide.
According to Ericsson, the cash transaction would be internally funded, and would boost its presence in the fast-growing market of next-generation IP, or Internet Protocol, networks. The Swedish company said the Redback acquisition would help it lower costs and upgrade its networks.
According to market research firm Yankee Group, the total market for IP edge routing, the market in which Redback principally operates, is forecast to top $5 billion by 2009. Globally, all carriers have some plans to unify communications and entertainment services over IP-based broadband networks.
The two companies see 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 - or 10 times the broadband opportunity presented by 250 million users today.
Citigroup and SEB Enskilda acted as Ericsson's advisors in the transaction, and UBS advised Redback, the companies said.