Ericsson to buy Redback Networks for $2.1 billion

SAN FRANCISCO (Reuters) - Telecommunications equipment maker Ericsson AB (ERICb.ST)(ERIC.O) will buy data networking equipment vendor Redback Networks Inc. (RBAK.O) for $2.1 billion in cash, the companies said on Tuesday.

Once complete, 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.

Redback was founded in 1996 and was a high-flying stock in the late 1990s, during the dot-com and telecommunications investment bubbles. It is a competitor to Juniper Networks Inc. (JNPR.O) and to far larger rival Cisco Systems Inc. (CSCO.O)

Ericsson will pay $25 in cash per Redback share, representing an 18 percent premium to Redback's closing stock price of $21.17 on Nasdaq on Tuesday. Ericsson said that the cash transaction would be internally funded and boosts its presence in the fast-growing market of next-generation IP, or Internet Protocol, networks.

Ericsson also said Redback would help telecommunications carriers lower costs and upgrade their networks. Redback will keep its current management team and will operate as a wholly owned subsidiary of Ericsson.

The total market for IP edge routing, the market in which Redback principally competes, is forecast to top $5 billion by 2009, according to market research firm Yankee Group.

Ericsson and Redback said they believe there is 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.

The companies said the proposed acquisition is subject to customary closing conditions and regulatory approvals, and is expected to close early in 2007.

In extended trade after news of the proposed acquisition, shares of Redback rose 17 percent to $24.80. Shares of Ericsson rose 45 cents, or 1.1 percent, to close at $40.62 on Nasdaq on Tuesday, before the planned deal was announced.

At $25 per share, Redback is valued at 39 times its projected 2007 earnings per share before items, according to estimates compiled by Reuters Estimates. Rival Juniper trades at 22 times its projected 2007 profits per share before items.

Citigroup and SEB Enskilda acted as Ericsson's advisors in the transaction, and UBS advised Redback, the companies said.