Swedish communication technology and services provider Ericsson ( ERIC ) recently signed a conditional agreement with Danish company NKT Cables to divest its power cable operation. The transaction has been valued at SEK 250 million ($35.5 million). The transaction is subject to relevant regulatory approvals and is expected to close by the beginning of third quarter 2013.
Net sale for the power cable operation, which currently is a sub-segment of the business unit ‘Networks’, was SEK 1.5 billion ($0.23 billion) in fiscal 2012.
Currently, Ericsson estimates the transaction to lead to an approximate net loss of SEK -100 million ($15.39 million). The loss is likely to adversely affect the operating income of the ‘Networks’ segment in the third quarter 2013.
As per the terms of the agreement, Ericsson’s factory in Falun, Sweden will be taken over by NKT Cables. In addition, about 320 employees and consultants, who are primarily based in Sweden and currently employed by Ericsson will be transferred to NKT Cables and will form a part of its workforce.
NKT Cables is a global front-line supplier to the energy sector. The company develops, manufactures and markets high quality cables and solutions. Management of Ericsson believes that the divested power cable segment will be able to operate more efficiently as part of NKT Cables, generating higher revenues. The observation is based on the fact that power cable business is the primary focus and core business of NKT Cables.
Recently,Ericsson also signed an agreement with Microsoft Corporation ( MSFT ) to acquire the latter’s TV solution Mediaroom business. All these initiatives are aimed to concentrate more on the technology business of the company.
Ericsson currently has a Zacks Rank #3 (Hold). Other wireless equipment stocks worth mentioning are Interdigital Inc. ( IDCC ) and Sonus Networks, Inc.( SONS ), all having a Zacks Rank #2 (Buy).
Source:NASDAq
