Ericsson Buying Redback Networks; More Telecom Equip Takeovers Likely?

So, first the news: Ericsson (ERIC) has agreed to acquired Redback Networks (RBAK) for $2.1 billion, or $25 a share. That’s a nice premium: after hours, Redback shares jumped $3.83, or 17%, to $24.80. (Ericsson shares gained 4 cents to $40.66.) The deal is expected to close in early 2007. Redback will maintain its current management team, and operate as a wholly owned sub of Ericsson. Citigroup and SEB Enskilda are Ericsson’s financial advisors in the acquisition. UBS is acting as the financial advisor for Redback.

OK, so now bring on the scorn. Perhaps you noticed that earlier today I posted an item on a downgrade of Redback by RBC’s Mark Sue, who mentioned among other things that a takeover of the company was likely not imminent; he ran through and dismissed a variety of potential suitors, but didn’t mention Ericsson. Now, that is some seriously bad timing; clearly he didn’t know this was happening, which I suppose is a sign that they effectively kept the discussions secret. I feel silly having that post on the blog now; but not half as silly as Mark Sue must feel tonight.

Meanwhile, I should point out that there have been other analysts who in recent months have tagged Redback as a potential takeover target. On November 3, UBS analyst Jeffrey Schlessinger predicted a pick-up in the pace of consolidation in the telecom equipment sector, identified Ericsson as the most likely acquirer, and listed Redback as one of several potential targets, along with Juniper (JNPR) and Tellabs (TLAB). Back on June 26, another analyst at UBS, Nikos Theodosopoulos made a similar comment. On June 22, B. Alex Henderson of Citigroup pointed to Redback as a possible target, though he named Motorola (MOT) as a likely buyer.

And yes, I noticed: UBS, which twice ID’d Redback as a possible target for Ericsson, was Redback’s banker on the deal; while Citigroup, another merger prognosgticator, represented Ericsson.

Tomorrow will no doubt bring a new round of speculation of the next targets in the telecom sector; don’t be surprised to see Juniper and Tellabs mentioned prominently. I’ll pass along the Street’s commentary tomorrow once it rolls in.