Ericsson (NASDAQ: ERIC) has entered into an agreement to
acquire Vonage (NASDAQ: VG) for USD 21 per share. This represents a
total acquisition price of approximately USD 6.2 billion
(Enterprise Value).
The merger agreement was approved unanimously by the Board of
Vonage. The transaction builds upon Ericsson’s stated intent to
expand globally in wireless enterprise, offering existing customers
an increased share of a market valued at USD 700 billion by
2030.
Börje Ekholm, President and CEO of Ericsson, says: “The core of
our strategy is to build leading mobile networks through technology
leadership. This provides the foundation to build an enterprise
business. The acquisition of Vonage is the next step in delivering
on that strategic priority. 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.”
“Today Network APIs are an established market for messaging,
voice and video, but with a significant potential to capitalize on
new 4G and 5G capabilities. Vonage’s strong developer ecosystem
will get access to 4G and 5G network APIs, exposed in a simple and
globally unified way. This will allow them to develop new
innovative global offerings. Communication Service Providers will
be able to better monetize their investments in network
infrastructure by creating new API driven revenues. Finally,
businesses will benefit from the 5G performance, impacting
operational performance, and share in new value coming from
applications on top of the network.”
Rory Read, CEO of Vonage, says: “Ericsson and Vonage have a
shared ambition to accelerate our long-term growth strategy. 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. The combination of our two companies offers
exciting opportunities for customers, partners, developers and team
members to capture this next wave.”
“We believe joining Ericsson is in the best interests of our
shareholders and is a testament to Vonage’s leadership position in
business cloud communications, our innovative product portfolio,
and outstanding team.”
For Ericsson, the acquisition builds on the success of the
integration of Cradlepoint in September 2020. Cradlepoint has
continued to develop strongly under Ericsson’s ownership.
Vonage and the Vonage Communications Platform (VCP)
Vonage, a global provider of cloud-based communications, has a
strong track record of growth and margin evolution. Sales were USD
1.4 billion in the 12-month period to 30 September 2021, and over
the same period, Vonage delivered an adjusted EBITDA margin of 14%
and free cash flow of USD 109 million.
The cloud-based Vonage Communications Platform (VCP) serves over
120,000 customers and more than one million registered developers
globally. The API (Application Programming Interface) platform
within VCP allows developers to embed high quality communications -
including messaging, voice and video - into applications and
products, without back-end infrastructure or interfaces. Vonage
also provides Unified Communications as a Service (UCaaS) and
Contact Center as a Service (CCaaS) solutions as part of the Vonage
Communications Platform.
VCP accounts for approximately 80% of Vonage’s current revenues
and delivered revenue growth in excess of 20% in the three-year
period to 2020, with adjusted EBITDA margins moving from -19% in
2018 to break-even in the 12-month period to 30 September 2021.
Vonage’s management team projects annual growth of over 20% for VCP
in the coming years.
Ericsson and Vonage – creating a winning combination
Vonage’s presence in the Communication Platform as a Service
(CPaaS) segment will provide Ericsson with an opportunity to access
a complementary, substantial and high growth segment. With
increasing investments in 4G and 5G - and a flourishing ecosystem
of new applications and use cases leveraging the power of modern
networks - demand from enterprises for programmable networks has
been accelerating. CPaaS technologies democratize network access by
offering API-enabled communications services. The CPaaS market is
expected to reach USD 22 billion by 2025, growing at 30% annually.
In addition, Ericsson’s global leadership in 5G technology is
expected to provide access to the developing space for open network
APIs, which is expected to reach at least USD 8 billion by the end
of the decade with a strong growth profile. CSP customers will also
benefit from monetizing their network investments, optimizing the
user experience and stimulating additional growth opportunities
with new and advanced global network APIs and access to Vonage’s
unified communications and contact center solutions.
The combination of Vonage’s customer base and developer
community and Ericsson’s deep network expertise, 26,000 R&D
specialists and global reach creates opportunities to accelerate
standalone strategies and innovation in the market. This includes
accelerating enterprise digitalization and developing advanced APIs
made possible by 5G; putting the power of the wireless network and
communications at the fingertips of the developer. Such APIs can be
applied to help ensure the quality of critical services like
telemedicine, immersive virtual education and autonomous vehicles
as well as experiential performance benefits in gaming, augmented
and extended reality, over wireless.
In the longer term, Ericsson intends to offer value benefits to
the full ecosystem – telecom operators, developers, and businesses
– by creating a global platform for open network innovation, built
on Ericsson and Vonage’s complementary solutions.
Overview of the transaction
The acquisition will be conducted by means of a merger agreement
through which Ericsson will acquire all of Vonage’s outstanding
shares at an all-cash price of USD 21 per share. The merger
consideration represents a premium of 28% to Vonage’s closing share
price on 19 November 2021 of USD 16.37 per share, and a premium of
34% to the volume-weighted average share price over the 3 months to
19 November 2021 of USD 15.71 per share.
The acquisition will be financed through Ericsson’s existing
cash resources, which amounted to SEK 88 billion as of 30 September
2021 on a gross basis, and SEK 56 billion on a net basis as of the
same date.
The transaction is expected to deliver near-term revenue synergy
opportunities, including white-labelling and cross-selling of the
combined product portfolio estimated to contribute USD 0.4 billion
by 2025. Ericsson also expects to achieve some cost efficiencies
following completion of the transaction.
The transaction is expected to be accretive to EPS (excluding
non-cash amortization impacts) and free cash flow before M&A
from 2024 onwards.
On completion, Vonage will become a wholly owned subsidiary of
Ericsson and will continue to operate under its existing name. It
will be reported as a separate segment in Ericsson accounts. Vonage
is headquartered in Holmdel, New Jersey in the United States with
2,200 employees throughout the United States, EMEA and APAC.
Vonage’s employees will remain with the company and the Vonage CEO
Rory Read will join the Executive Team of Ericsson, reporting to
President and CEO, Börje Ekholm. Read joined Vonage as CEO in July
2020. With more than three decades’ global technology industry
experience, Read was previously Chief Operating Executive for Dell
Technologies and before that, CEO of Advanced Micro Devices
(AMD).
Ericsson remains fully committed to previously communicated
financial targets, including long-term EBITA margins of 15-18%;
long term FCF before M&A of 9-12% of sales; and a 2022 target
EBIT margin of 12-14% for Ericsson Group excluding Vonage.
Completion of the transaction is subject to Vonage shareholder
approval, regulatory approvals and other customary conditions and
is expected within the first half of 2022.
Additional Details of the Transaction
The Vonage Board of Directors unanimously approved the
transaction. The Board of Directors of Vonage recommends that
Vonage shareholders approve the transaction and adopt the merger
agreement.
The agreement is a result of a comprehensive review of strategic
alternatives to maximize shareholder value. The Vonage Board of
Directors authorized the review of strategic alternatives, which
included outreach to a number of potential strategic and financial
parties. Qatalyst Partners is serving as financial advisor and
Weil, Gotshal & Manges LLP is serving as legal advisor in
connection with the strategic review and transaction.
INVITATION TO MEDIA AND ANALYST CALL
Ericsson will hold two conference calls for journalists,
financial analysts, and investors. Börje Ekholm, President and CEO
and Carl Mellander, Chief Financial Officer will make brief
comments and take questions.
Conference call 9:10 AM CET
The first conference call will begin November 22, at 9:10 AM CET
(8:10 AM GMT in London and 3:10 AM EST in New York).
Join the audio webcast or please go to
www.ericsson.com/investors
To ask a question, please call:
Sweden: +46 (0)8 566 426 51 (Toll-free Sweden: 0200 883 685)
International/UK: +44 (0)333 300 0804 (Toll-free UK: 0800 358
9473)
US: +1 631 913 1422 (Toll-free US: +1 855 85 70686)
PIN code: 89920727#
Please call in at least 15 minutes before the briefing
starts.
The webcast will be available on-demand after the event and can
be viewed on our website.
Conference call 3:30 PM CET
The second conference call will begin November 22, at 3:30 PM
CET (2:30 PM GMT in London and 9:30 AM EST in New York).
Join the audio webcast or please go to
www.ericsson.com/investors
To ask a question, please call:
Sweden: +46 (0)8 566 426 51 (Toll-free Sweden: 0200 883 685)
International/UK: +44 (0)333 300 0804 (Toll-free UK: 0800 358
9473)
US: +1 631 913 1422 (Toll-free US: +1 855 85 70686)
PIN code: 26077162#
Please call in at least 15 minutes before the briefing
starts.
The webcast will be available on-demand after the event and can
be viewed on our website.
About EricssonEricsson enables communications
service providers to capture the full value of connectivity. The
company’s portfolio spans Networks, Digital Services, Managed
Services, and Emerging Business and is designed to help our
customers go digital, increase efficiency and find new revenue
streams. Ericsson’s investments in innovation have delivered the
benefits of telephony and mobile broadband to billions of people
around the world. The Ericsson stock is listed on Nasdaq Stockholm
and on Nasdaq New York. www.ericsson.com
About VonageVonage (Nasdaq:VG), a global
cloud communications leader, helps businesses accelerate their
digital transformation. Vonage's Communications Platform is fully
programmable and allows for the integration of Video, Voice, Chat,
Messaging and Verification into existing products, workflows and
systems. Vonage's fully programmable unified communications and
contact center applications are built from the Vonage platform and
enable companies to transform how they communicate and operate from
the office or anywhere, providing enormous flexibility and ensuring
business continuity. Vonage Holdings Corp. is headquartered in New
Jersey, with offices throughout the United States, Europe, Israel
and Asia. To follow Vonage on Twitter, please visit
twitter.com/vonage. To become a fan on Facebook, go to
facebook.com/vonage. To subscribe on YouTube, visit
youtube.com/vonage.
Vonage Investor Contact: Monica Gould,
212.871.3927, ir@vonage.com
Vonage Media Contact: Jo Ann Tizzano,
732.365.1363, joann.tizzano@vonage.com
Additional Information and Where to Find It
In connection with the proposed merger, the
Company intends to file relevant materials with the Securities and
Exchange Commission (the “SEC”), including a proxy statement on
Schedule 14A. Promptly after filing its definitive proxy statement
with the SEC, the Company will mail the definitive proxy statement
and a proxy card to each stockholder entitled to vote at the
special meeting relating to the proposed merger. BEFORE MAKING ANY
VOTING DECISION, STOCKHOLDERS OF THE COMPANY ARE ADVISED TO READ
THE PROXY STATEMENT AND ANY AMENDMENTS THERETO IN THEIR ENTIRETY
WHEN FILED WITH THE SEC, AND ANY OTHER DOCUMENTS FILED BY THE
COMPANY WITH THE SEC IN CONNECTION WITH THE PROPOSED MERGER BECAUSE
THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE COMPANY AND THE
BUSINESS TO BE CONDUCTED AT THE SPECIAL MEETING. All such
documents, when filed, may be obtained free of charge at the SEC’s
website (http://www.sec.gov) or upon request by contacting the
Company, Investor Relations, via email at ir@vonage.com. The
Company’s filings with the SEC are also available on the Company’s
website at https://ir.vonage.com/.
Participants in the Solicitation
The Company and its directors and executive
officers may be deemed to be participants in the solicitation of
proxies from the Company’s stockholders with respect to the
proposed merger. Information about the Company’s directors and
executive officers and their ownership of the Company’s common
stock is set forth in the proxy statement on Schedule 14A filed
with the SEC on April 26, 2021 and the Company’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2020 filed with
the SEC on February 19, 2021. To the extent that such individual’s
holdings of the Company’s common stock have changed since the
amounts printed in the Company’s proxy statement, such changes have
been or will be reflected on Statements of Change in Ownership on
Form 4 filed with the SEC. Information regarding the identity of
the potential participants, and their direct or indirect interests
in the proposed merger, by security holdings or otherwise, will be
set forth in the proxy statement and other materials to be filed
with SEC in connection with the proposed merger.
Vonage Forward-looking statements
This communication contains forward-looking statements,
including statements regarding the effects of the proposed
acquisition of the Company by Ericsson, that constitute
forward-looking statements for purposes of the safe harbor
provisions under The Private Securities Litigation Reform Act of
1995. In addition, other statements in this communication that are
not historical facts or information may be forward-looking
statements. The forward-looking statements in this communication
are based on information available at the time the statements are
made and/or management's belief as of that time with respect to
future events and involve risks and uncertainties that could cause
actual results and outcomes to be materially different. Important
factors that could cause such differences include, but are not
limited to: the occurrence of any event, change or other
circumstances that could give rise to the termination of the merger
agreement; the inability to complete the proposed merger due to the
failure to obtain stockholder approval for the proposed merger or
the failure to satisfy other conditions to completion of the
proposed merger; risks related to disruption of management’s
attention from the Company’s ongoing business operations due to the
transaction; the effect of the announcement of the proposed merger
on the Company’s relationships with its customers, operating
results and business generally; the risk that the proposed merger
will not be consummated in a timely manner; the impact of the
COVID-19 pandemic; the competition we face; the expansion of
competition in the cloud communications market; risks related to
the acquisition or integration of businesses we have acquired; our
ability to adapt to rapid changes in the cloud communications
market; the nascent state of the cloud communications for business
market; our ability to retain customers and attract new customers
cost-effectively; developing and maintaining market awareness and a
strong brand; developing and maintaining effective distribution
channels; security breaches and other compromises of information
security; risks associated with sales of our services to
medium-sized and enterprise customers; our reliance on third-party
hardware and software; our dependence on third-party vendors;
system disruptions or flaws in our technology and systems; our
ability to comply with data privacy and related regulatory matters;
our ability to scale our business and grow efficiently; the impact
of fluctuations in economic conditions, particularly on our small
and medium business customers; the effects of significant foreign
currency fluctuations; our ability to obtain or maintain relevant
intellectual property licenses or to protect our trademarks and
internally developed software; fraudulent use of our name or
services; restrictions in our debt agreements that may limit our
operating flexibility; our ability to obtain additional financing
if required; retaining senior executives and other key employees;
intellectual property and other litigation that have been and may
be brought against us; rapid developments in global API regulation
and uncertainties relating to regulation of VoIP services; risks
associated with legislative, regulatory or judicial actions
regarding our business products; reliance on third parties for our
911 services; liability under anti-corruption laws or from
governmental export controls or economic sanctions; actions of
activist shareholders; risks associated with the taxation of our
business; governmental regulation and taxes in our international
operations; our history of net losses and ability to achieve
consistent profitability in the future; our ability to fully
realize the benefits of our net operating loss carry-forwards if an
ownership change occurs; risks associated with the settlement and
conditional conversion of our Convertible Senior Notes; potential
effects the capped call transactions may have on our stock in
connection with our Convertible Senior Notes; certain provisions of
our charter documents; and other factors that are set forth in the
“Risk Factors” in our Annual Report on Form 10-K and in the
Company's Quarterly Reports on Form 10-Q filed with the SEC. While
the Company may elect to update forward-looking statements at some
point in the future, the Company specifically disclaims any
obligation to do so except as required by law, and therefore, you
should not rely on these forward-looking statements as representing
the Company's views as of any date subsequent to today.
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