By Supantha Mukherjee
STOCKHOLM (Reuters) – Telecoms equipment maker Ericsson (BS:) has booked another $1 billion impairment charge for its 2021 acquisition of cloud communications company Vonage, sending its shares down 2% in early trading.
Dubbed one of the biggest deals in history, Ericsson spent $6.2 billion in cash to buy Vonage to help the company focus on enterprise customers as it sought to diversify away from its mobile network business.
Since then, mobile network revenues have fallen due to lower demand for 5G equipment, Ericsson’s share price has halved due to a bribery scandal in Iraq, and last year the Vonage deal took a $3 billion non-cash write-down.
“Given the deterioration in the market environment and the discretionary decisions we have made to refocus our investments on strategically prioritized areas, we have reassessed certain growth assumptions, which has resulted in a non-cash impairment charge of 11.4 billion Swedish krona ($1, 1 billion),” said the Vonage CEO. Niklas Heuveldop, who got the top job in February.
Vonage is run as an independent unit of Ericsson.
Ericsson had expected Vonage to boost earnings per share and free cash flow from 2024, but so far the company has written down $4 billion, or about two-thirds of the purchase price.
Ericsson paid $21 for each outstanding Vonage share, a 28% premium to the stock’s previous closing price and a 34% premium to the average of the past three months, a price that analysts said was high at the time.
“This confirms the contention that Ericsson significantly overpaid for the unit in 2021,” said Mads Lindegaard Rosendal, analyst at Danske Bank Credit Research.
($1 = 10.4936 Swedish Krona)
