(Bloomberg) — Ericsson has agreed to buy Vonage Holdings Corp. in its biggest-ever deal, a takeover that also concludes a brief but successful activism campaign by Jana Partners.
Ericsson’s $6.2 billion all-cash offer for Vonage dwarfs its 1.2 billion pound ($1.6 billion) acquisition for Telent Ltd telecom equipment assets in 2005, according to data compiled by Bloomberg.
Jana Partners, which owns about 4% of Vonage, called on the company in August to hire advisers to explore strategic alternatives, including a possible sale of all or parts of the telecommunications services company.
Vonage, based in Holmdel, New Jersey, provides business communications services that run via the internet. Ericsson’s shares fell as much as 4.3% in early trading on Monday, with credit analysts at Danske Bank noting that the price Ericsson is paying for Vonage is “quite steep.”
“I think we’re paying the right price,” said Chief Financial Officer Carl Mellander in an interview. “It’s a value that we justify, otherwise we wouldn’t do it.”
Ericsson will pay $21 per share for Vonage using existing cash, according to a statement Monday. The offer represents an equity value of $5.3 billion, and a fully diluted value of about $6.2 billion, according to a company statement on Monday.
Ericsson’s push into cloud-based services comes as its earnings have been hampered by both lost business in China and component shortages from a global supply-chain squeeze. The company said on Monday that it remains fully committed to its long-term Ebita margin target of 15-18%.
“We might see more acquisitions and our job is to create value,” said Mellander.
The U.S. company’s cloud-based communications platform accounts for 80% of its $1.4 billion annual revenues and enables developers to embed services such as messaging or video into their products. That customer base and developer community is seen as a key draw for Ericsson.
Ericsson’s activist owner Cevian Capital AB said it welcomed the company’s push to accelerate growth within the enterprise segment, enabling a “meaningful re-rating opportunity.”
Vonage itself had been under pressure from activist investor Jana Partners and was working with advisers to run a strategic review of the business. That review included the possibility of a full sale of the company, Bloomberg News reported in September.
“Vonage gives us a platform to help our customers monetize the investments in the network, benefiting developers and businesses,” said Ericsson’s Chief Executive Office Borje Ekholm.
Read More: Jana Partners Said to Build Vonage Stake With Review Ended
(Adds comment from Cevian, additional context.)
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