04:46 AM

12.20.06: Ericsson buys Redback for $2.1bn

Ericsson is buying "edge" router maker Redback for $2.1 billion. Not exactly a household name, Redback's technology is seen as key to supporting the growth of Internet video, AP says.

"It's a huge market for the routing technology necessary to build out these networks, and it's really video driving the need for the infrastructure changes," he said in an interview. "I don't view this as an ending, I view it as a perfect match of the key technologies that will be necessary in the future."

Om offers a litte history on the company:

Those of you too young to buy your own drinks may not know Redback, but is was once as highflying as say, Facebook. It was a company which made uber-VCs like Norwest Capital Partners, Telesoft and Kleiner Perkins Caufield Byers a lot of money… and I mean a lot of money. But that was back in the day2, the late 1990s. But then the bubble popped, and everyone assumed Redback would deflate along with it.

But they didn’t! The broadband boom happened, and suddenly everyone wanted to get a piece of Redback’s multi-service edge routing technology. That’s a fancy way of saying it makes boxes that allow phone companies sell DSL, broadband, telephone, TV and other services over the local loop. In 2005, sales were up 33 percent, and in first nine months of 2006, sales went up another 87 percent to about $197 million.

Ericsson is paying $25 for a share of Redback, an 18% premium on their recent closing price (and Om notes, a 60% premium on their 90-day moving average). That's seen as definitely on the high end but not in the stratosphere.

"The price reflects the future," Ericsson Chief Executive Carl-Henric Svanberg told Reuters. "Redback does not have anything unique which we would not be able to develop on our own over two to three years, but now we get to the market faster and our offering becomes more complete."

But Reuters offers some other benchmarks that show just how steep the price is.

The deal values Redback at 39 times projected 2007 earnings per share before items, according to Reuters Estimates. Rival Juniper trades at 22 times projected 2007 per share profits per share before items.

The deal is one more in a series of consolidations in the network industry. News.com relates:

French equipment maker Alcatel and United States-based Lucent Technologies closed their deal last month. German telecommunications equipment maker Siemens and Nokia are planning to merge parts of their businesses early next year to compete. Last year, Ericsson also bought Marconi, a maker of IP-networking gear for about $2 billion.