Ericsson, Nokia Shares Get Boost From Barr -- WSJ
February 08 2020 - 3:02AM
Dow Jones News
By Dominic Chopping
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (February 8, 2020).
STOCKHOLM -- Shares in Ericsson AB and Nokia Corp. rose Friday
after the Trump administration floated the idea that the U.S. could
buy a stake in either of the telecom-equipment manufacturers -- a
sign that investors at least are taking the gambit seriously.
U.S. Attorney General William Barr told an audience in
Washington on Thursday the U.S. and its allies should consider
taking a controlling financial interest in the two Nordic
companies, as a way of countering the dominance of China's Huawei
Technologies Co. in the market for 5G.
The suggestion from Mr. Barr, a former general counsel at
cellphone carrier Verizon Communications Inc. -- a big customer of
Ericsson and Nokia -- left many industry watchers wondering how
serious the administration was about the idea.
Representatives for Ericsson and Nokia didn't comment, and
neither did spokespeople for the governments of Sweden and Finland,
where the two companies are based and are national champions. Some
investors, though, appeared to embrace the idea, with shares in
both companies rising more than 4%.
Cevian Capital, one of Ericsson's largest shareholders, said a
deal would make perfect sense for the U.S. if it wanted to be a
leader in 5G technology. Cevian said it has an 8.4% stake in
Ericsson.
However, any deal would have to involve a hefty premium to
Ericsson's share price, said Christer Gardell, Cevian's managing
partner.
"The current share price greatly undervalues the company's
long-term fundamentals," he said.
The share prices of both Ericsson and Nokia have fallen over the
past year as the companies battle for control of the burgeoning
market for 5G equipment with Huawei.
Mr. Gardell suggested a U.S. investment in Ericsson could pose
fewer hurdles than a deal with Nokia because the Swedish company
doesn't have state ownership. Finland holds a 3.8% stake in Nokia
through its Solidium holding company, which holds stakes in
nationally important listed companies. Solidium declined to
comment.
"It is clearly better for Sweden, the company, the employees and
the shareholders that an American deal is done with Ericsson and
not with Nokia," Mr. Gardell said. "The board and management need
to drive and handle this question with the highest priority."
The suggestion from Mr. Barr represents one of the Trump
administration's most aggressive proposals yet for pushing back
against Shenzhen-based Huawei.
U.S. officials have pushed governments to ban Huawei's gear from
their networks, saying the Chinese company could be legally obliged
to allow Beijing to use its staff and equipment to spy on foreign
networks. Huawei has denied that it would ever do this.
"We have to make a decision on the 'horse' we are going to ride
in this race," Mr. Barr said during a speech at the Center for
Strategic and International Studies in Washington, where
law-enforcement officials described the challenges of combating
China's threats to U.S. economic and national security.
Mr. Barr warned that allowing China to dominate 5G networks
poses a "monumental danger" not just for security but for the
future of the U.S. economy.
The technology promises to supercharge cellphones and ultimately
enable driverless cars and internet-controlled factories.
"Some propose that these concerns could be met by the United
States aligning itself with Nokia and/or Ericsson through American
ownership of a controlling stake, either directly or through a
consortium of private American and allied companies," Mr. Barr
said. "Putting our large market and financial muscle behind one or
both of these firms would make it a more formidable competitor and
eliminate concerns over its staying power."
Analysts suggested the U.S. government was more likely to
encourage American companies to buy a stake in the Nordic companies
than invest itself. They also suggested that the U.S. government
could support Ericsson and Nokia in other ways -- such as tax
breaks or research-and-development support -- to better compete
with Huawei.
--Adrià Calatayud contributed to this article.
Write to Dominic Chopping at dominic.chopping@wsj.com
(END) Dow Jones Newswires
February 08, 2020 02:47 ET (07:47 GMT)
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