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Case Studies

Peter A. Sokoloff & Co. regularly analyzes transactions which occur within the industries covered. An archive of these case studies is kept online as a courtesy to our colleagues. To receive by e-mail new case studies as they are prepared, please e-mail [email protected] with your contact information.

Archives > Transaction Case Study 26

Ericsson to acquire LHS

Dear Colleague,

On June 5, 2007, LM Ericsson (NSADAQ:ERIC), the world's largest maker of wireless networks, has made an offer to buy approximately 75.1% of German billing and customer care software company LHS AG (XETRA:LHS). The transaction price translates into an enterprise price of €310 million (approximately USD $412 million), after adjusting for options of EUR 16.1 million and the net cash position of EUR 22.2 million.

Ericsson will pay $30.33 USD per share under the agreement, initially purchasing 55.1 percent of LHS' shares from insiders and then committing to buy an additional 20 percent for a total purchase of 75.1 percent of the company. Frankfurt-based LHS has around 550 staff and ttm revenue of approximately €86.8 million (USD $ 115.5 million).

The voluntary public cash offer represents a premium of 33 percent on LHS’ one month average share price prior to June 4, 2007 of $22.64 USD per share.

Deducting a balance sheet tax asset of €29.495, we judge the actual Enterprise Value to be €280.5 million (USD $373.3 million). This means that Ericsson is paying 3.23x revenue and about 18x EBITDA based on an 18% margin or €15.6 million (USD $19.6 million)*.

The transaction envisions combining Ericsson's prepaid solutions with LHS postpaid offering to provide a fully integrated convergent charging and billing solution for mobile and fixed operators. It also expands Ericsson's customer base and enables significant cross-sell opportunities. The transaction is expected to be accretive from 2008 onwards, excluding possible depreciation of acquired intangibles.

"Operators are quickly moving towards convergent charging and billing solutions to enhance their relationship with consumers, improve cost efficiency and limit financial risk," Ericsson's Chief Executive Carl-Henric Svanberg said in a statement. "Ericsson and LHS form a strong constellation of prepaid and postpaid solutions ready to immediately capture this opportunity."

An offer document regarding the cash offer will be published upon approval of the German Federal Financial Supervisory Authority (BaFin). The publication, at which time also the offer period begins, is expected to occur in one month's time. Completion of the cash offer is expected in the third quarter, 2007.

*Information obtained for this report was extrapolated from various public reports.

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