Ericsson Wins Nortel Auction

--Former Canadian network infrastructurer giant was sold. --Ericsson bought its most profitable piece, CDMA business, for $1.13 billion, expaned large presence in North America --The auction drew three competitors – Ericsson, Nokia Siemens Networks and distressed-debt investor MatlinPatterson Global Advisers LLC --Layoff will follow By SARA SILVER Telefon AB L.M. Ericsson will pay $1.13 billion to acquire the most profitable piece of bankrupt Nortel Networks Corp. after winning an auction for the assets late Friday. The assets Ericsson is buying include Nortel's profitable but declining CDMA business, which sells a key wireless technology to major U.S. carriers, and a group of 400 researchers working on a high-end broadband technology. Nortel will ask bankruptcy courts in the U.S. and Canada to approve the sale on July 28. The auction drew three competitors – Ericsson, Nokia Siemens Networks and distressed-debt investor MatlinPatterson Global Advisers LLC, which is among Nortel's largest bondholders. Nokia Siemens set off the auction process this spring with an unsolicited $650 million bid. The deal will significantly boost Ericsson's presence in North America. In a release, the company said Nortel's CDMA operations generated about $2 billion in 2008, compared with sales of about $2.7 billion for Ericsson's North American business that year. The combination will leave North America the largest region within Ericsson. Ericsson has agreed to offer jobs to at least 2,500 employees of the Nortel units. In agreeing to take at least 2,500 people from Nortel, Ericsson is inheriting about 80% of the division's employees, a Nortel spokeswoman said. For the remaining 20%, Nortel will look for opportunities in its other business, but if they can't be placed, there may be layoffs, a Nortel spokesman said. The deal includes CDMA contracts with North American operators like Verizon Wireless and Sprint Nextel Corp. It also includes a group of engineers working on LTE, or long-term evolution, a wireless broadband technology, and a lifetime license to Nortel's LTE patents, which will be sold separately. Ericsson is getting the assets debt free and says the purchase will add to its earnings within a year of closing. In addition to selling the CDMA and LTE wireless operation, Nortel is also seeking buyers for its enterprise unit. The division sells telecom gear to large enterprises and organizations. Nortel has agreed to a stalking-horse bid for $475 million from Avaya Inc. for this business. However, Nortel has yet to release auction details for the operation. As the outcome for the wireless division showed, the stalking-horse bid doesn't necessarily represent the chosen offer. Nortel also seeks buyers for its division that sells optical gear for city networks and a second that targets phone carriers' voice over Internet protocol networks, the Nortel spokeswoman said. Magnus Mandersson, head of Ericsson Northern Europe, will be president of Ericsson's CDMA operations, and Richard Lowe of Nortel has been named chief operating officer. The auction stretched into the night Friday at a New York law firm BlackBerry maker Research In Motion Ltd. was a wild card in the process. This week, the company complained that Nortel blocked it from bidding. RIM asked the Canadian government to intervene in the bankruptcy process, but the government said it will leave the matter to the courts. On Friday, Ericsson said its second-quarter profit fell to 831 million Swedish kronor ($111 million) from 1.9 billion kronor due to restructuring charges and losses at Sony Ericsson, and said the economic downturn is now hurting some of its markets. "The effects of the global economic climate on the mobile infrastructure market are now more notable, especially in markets with currencies under pressure and a tougher credit environment," Chief Executive Carl-Henric Svanberg said. —Ben Dummett and Gustav Sandstrom contributed to this article. Write to Sara Silver at sara.silver@wsj.com