Ericsson says not in takeover talks

Jan Strupczewski

STOCKHOLM: Swedish telecom equipment maker Ericsson said on Monday that it

was not in takeover talks, capping share price gains sparked when a leading

shareholder said it should play a role in sector consolidation.

Ericsson, the world's biggest producer of mobile networks which is preparing

for a $3.3 billion rights issue, responded to the speculation in a statement

saying it was not in merger talks, but that it could not rule them out in the

future.

"Today, we are focusing on completing our rights offering as planned

before the end of third quarter this year," Chairman Michael Treschow said

in a statement. "Ericsson has no negotiations regarding takeover or other

similar alliances, although no one can rule out such future scenarios," he

said.

Shares in Ericsson, which surged 16.5 per cent to 16.2 crowns at their peak

on the takeover talk, slipped to trade 6.5 per cent higher at 14.8 crowns after

the statement. But they still outperformed the DJ Stoxx technology index by 4.1

per cent after having underperformed it by 55 per cent since the start of the

year.

Ericsson and rivals like France's Alcatel, Lucent and Nortel Networks have

been hit by a decline in orders as a crisis in the telecom sector forces

cash-strapped operators to curb spending.

The takeover speculation was ignited by an interview with a company

shareholder in the Swedish press. Analysts said that Germany's Siemens was one

possible buyer, but that Ericsson was more likely to make acquisitions than be

bought.

Lars Otterbeck, chief executive of the Alecta pension fund which owns 3.4 per

cent of Ericsson's capital, told the Svenska Dagbladet daily that none of the

large equipment makers now seemed to be able to grow on their own. "The key

question is will Ericsson become a takeover target or itself place a bid for a

company," Otterbeck told the daily.

Rights issue



Ericsson has asked shareholders for 30 billion crowns ($3.29 billion) of new
funds through a rights issue to be sold in the third quarter, to help it through

the industry's downturn.

When the issue was announced in April, Ericsson's chief executive Kurt

Hellstrom said money raised through the issue could, among other things, be used

to buy parts of other companies in the sector. Treschow played down the

acquisition angle, stressing on Monday the money was primarily needed to reduce

Ericsson's debt.

"We are convinced that a solid financial position with a strong balance

sheet and ample liquidity will provide us with competitive benefits in this

uncertain environment," Treschow said in a statement. "This will allow

us to maintain and improve our leading market position by providing the

financial strength for organic expansion as well as strategic flexibility going

forward."

Alecta's Otterbeck did not mention potential suitors or targets for Ericsson

and his remarks came as a surprise to the company and some of the other large

shareholders. Analysts said Ericsson was more likely to buy parts of other

companies than be a target of a takeover bid because even after the 95 per cent

drop in share price since its peak value in March 2000, the company would still

be too expensive to buy.

"Ericsson is a bit big and there are not many people out there with cash

and the most likely takeover candidates are more interested in actually selling

their mobile businesses," said Philip Sparks, analyst at HSBC in London.

Analysts said the only company which could afford to and benefit from buying

Ericsson would be Siemens and a large Ericsson shareholder told Reuters the

company had made a bid for its Swedish rival several years ago.

"I was told the Siemens bid was made before the technology stocks boom

in 2000 and that Siemens had then offered a 40 per cent premium," the

shareholder said. He said also another company had been interested in Ericsson

but would not say which.

Brokers pointed to the share structure of Ericsson, which would make any

hostile takeover very difficult, because the bidder would have to win the

approval of the company's two main owners -- investment firms Investor and

Industrivarden -- which together control 80 per cent of the votes although only

seven per cent of the capital.

This is because they own A-series shares, which carry one vote, while most

other Ericsson investors have B-series shares with only one thousandth of a

vote. Both Investor and Industrivarden have said in the past that their stakes

in Ericsson were a long-term investment and that they were committed to the

company.

Industrivarden had no comment on the Otterbeck remarks and Investor

reiterated that Ericsson was one of its core holdings. To make the rights issue

more attractive, the main owners have agreed to discuss how to raise the B-share

voting rights to one tenth of a vote and present a proposal early next year.

(C) Reuters Limited.