Ericsson shares fall after another $1 billion Vonage impairment charge

By Supantha Mukherjee

STOCKHOLM (Reuters) – Telecom equipment maker Ericsson (BS:) has recorded another billion-dollar impairment charge for its acquisition of cloud communications firm Vonage in 2021, sending its shares down 2% in early trade.

Dubbed as one of its largest deals in history, Ericsson splurged $6.2 billion in cash to buy Vonage to help it target enterprise customers as it sought to diversify away from its mobile networks business.

Since then, mobile network revenue has fallen due to lower demand for 5G gear, Ericsson’s share price has halved over an Iraq bribing scandal, and it took a $3 billion non-cash charge last year on the Vonage deal.

“Given deterioration in the market environment and elective decisions we have made to refocus our investments in strategically prioritized areas, we have reassessed certain growth assumptions, resulting in a non-cash impairment of 11.4 billion Swedish crowns ($1.1 billion),” said 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 onwards, but so far it has written down $4 billion or about two-thirds off the purchase price.

Ericsson paid $21 for each outstanding Vonage share, a 28% premium to the previous closing price of the stock and a 34% premium to the average of the last three months, a price analysts said at that time was high.

“This confirms the thesis of Ericsson having significantly overpaid for the unit in 2021,” said Mads Lindegaard Rosendal, analyst at Danske Bank Credit Research.

($1 = 10.4936 Swedish crowns)