Ericsson and Redback Networks: A Cinderella StoryBy Paula Musich | Posted 2006-12-20 Email Print
European telecommunications equipment vendor Ericsson plunks down $2.1 billion to acquire Redback.Multiservice edge routing provider Redback Networks on Dec. 19 became the Cinderella of the telecom industry when European telecommunications equipment vendor Ericsson announced its plans to acquire Redback for $2.1 billion.
Ericsson offered Redback shareholders $25 a share for the company, which had filed for bankruptcy in 2003 when the telecommunications equipment market went bust. The $25 share price was an 18 percent premium over the closing price of Redback's shares yesterday, but a 60 percent premium over the average of the last 90 days, according to Ericsson.
Redback, which cut 1,000 jobs three years ago and set out to pioneer a router with integrated subscriber management built on a modular operating system, now has 15 of the top 20 wire-line carriers as customers using its Smart Edge router. And it tripled its market share over the past year to about 11 or 12 percent, according to Marco Wanders, chief marketing officer for Redback, in San Jose, Calif.
"Redback really has been a Wall Street darling," commented Eve Griliches, program manager at International Data Corp. "Everybody's been pulling for themcoming out of bankruptcy, gaining more and more market share, hitting profitability ahead of their goal."
Griliches pegs the edge router market at $3 billion in 2006, although she said she believes there are more opportunities for Redback in wireless backhaul opportunities and at the edge of the core router market. Yankee Group said it expects that market to swell to over $5 billion by 2009.
The deal, which is expected to close early in 2007, sets up Ericsson to compete directly with broadband edge market leader Alcate-Lucent, along with Cisco Systems and Juniper Networks. Those vendors have edge routers or Layer 3 edge switches that implement MPLS (Multiprotocol Label Switching), which is key for the emerging approach of multiservice edge routing over a single IP infrastructure.
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