Ericsson buys Redback to challenge Cisco

Ericsson has agreed to buy multi-service router firm Redback Networks for around $1.9bn in cash.

The deal, announced Wednesday, values Redback's stock at $25 per share, a tidy 60 per cent premium on its average price over the last three months, and is expected to close in February 2007, subject to the approval of Redback's shareholders and regulators.

Redback makes a range of IP routers, many designed for the edge of service provider networks, in competition with networking giant Cisco and others such as Juniper Networks. Ericsson said acquiring Redback would expand its IP market presence and growth opportunities. It specialises in technology designed to help service providers deliver internet broadband, voice and video service to their customers by taking advantage of newer IP technologies instead of more traditional ATM-based infrastructure.

"The combination of Redback's intelligent routing technology and our leading IMS (IP Multimedia Subsystem), optical transport and broadband access puts Ericsson in a leading position with end-to-end IP solutions for both fixed and mobile operators," Ericsson president and chief executive Carl-Henric Svanberg said. "The pace of IP deployment is accelerating as operators move to all-IP converged networks, in which quality of service requires increasingly intelligent routers with higher capacity."

Redback was founded in 1996 and boasts 700 carrier customers in more than 80 countries. It employs about 800 people, including 500 research and development engineers. Its sales grew 33 per cent in 2005 and 87 per cent for the first nine months of 2006 to reach $197m. Post acquisition, Redback will become a wholly owned subsidiary of Ericsson, based in its existing offices in San Jose and elsewhere. ®