Swedish telecom giant Ericsson will acquire Silicon Valley's Redback Networks, which produces routing equipment, for $25 a share - an 18% premium over Redback's closing price on Tuesday. With the growth of multimedia over broadband internet creating new demand for networking hardware, the combined company hopes to compete more aggressively against larger rivals Cisco and Juniper. Redback filed for bankruptcy in 2003 after its telecom boom expansion left it saddled with excessive debt; in late 2004 its stock traded for less than $3, but the company staged an impressive comeback following cost-cutting and layoffs of more than 1000 employees. Ericsson's acquisition of Marconi last year spurred broader consolidation in the industry, and this acquisition should help Ericsson in its effort to beat out Cisco in becoming the number two supplier of IPTV infrastructure following Alcatel.
• Sources: Ericsson news release, Associated Press, Bloomberg, Reuters, Wall St. Journal,
• Related commentary: Ericsson Buying Redback Networks; More Telecom Equip Takeovers Likely?, Om Malik: Ericsson buys Redback, Good Move?, Sony Ericsson Sees Opportunity in Mobile TV, Intel and Ericsson: IMS Laptops or Phones?, Qualcomm's Empire Is Under Siege Conference call transcript: LM Ericsson Q3 2006
• Potentially impacted stocks and ETFs: L.M. Ericsson Telephone Co. ADS (ERIC), Redback Networks Inc. (RBAK) Competitors: Cisco Systems Inc. (CSCO), Juniper Networks (JNPR), Alcatel (ALU) ETFs: iShares Goldman Sachs Networking (AMEX: IGN), PowerShares Dynamic Networking (PXQ)
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