July 25 (Bloomberg) -- Ericsson AB, the world’s largest maker of wireless phone networks, will buy the wireless equipment unit of insolvent Nortel Networks Corp. for $1.13 billion after beating bids from Nokia Siemens Networks and MatlinPatterson Global Advisers LLC.

Ericsson expects the cash transaction to have a “positive effect” on earnings within a year after closing, the Stockholm- based company, said today in a statement. Completion is subject to approval by the U.S. and Canadian bankruptcy courts.

The purchase will expand Ericsson’s footprint in North America as carriers there adopt the so-called LTE, or long-term evolution technology that Nortel’s has expanded into. With this month’s $5 billion services deal with Sprint Nextel Corp., Ericsson Chief Executive Officer Carl-Henric Svanberg is reinforcing his company’s focus on North America, where it has 14,000 workers.

“The Nortel unit is very profitable,” said Pierre Ferragu, a London-based analyst with Sanford Bernstein who rates Ericsson “outperform.” “I was very surprised to hear that Nokia Siemens let Nortel go to Ericsson for such a low price. It will have a positive impact on Ericsson’s earnings.”

The business should boost Ericsson’s market share in North America by almost 30 percent and globally by more than 5 percent over the next two to five years, according to Ferragu.

Technology Switch

The division supplies mobile-phone systems based on the code-division multiple access wireless standard, or CDMA, used by many North American networks. It also includes gear based on LTE that will be supported by the two biggest U.S. phone companies to power Web-equipped phones and netbooks.

“CDMA technology, still used a lot in the U.S., is beginning to die out,” said Michael Andersson, a Stockholm- based analyst with Evli Bank with an “accumulate” rating on the stock. “Ericsson wants to be there when this is replaced by LTE and other technologies.”

Licensing LTE technology to handset makers may be worth as much as $2.9 billion in royalties during the next 15 years, based on Nortel’s own predictions, JP Morgan Securities said last month. The standard’s future significance probably helped attract the variety of bidders, said Neeraj Monga, an analyst at Veritas Investment Research Co. in Toronto.

Future Sales

The Nortel unit is valued at about $500 million on a stand- alone basis, according to Sanford’s Ferragu. At least another $500 million can be added to the value because clients buying CDMA technology, which will disappear in about 10 years, will buy LTE-based equipment from Ericsson in the future, he said.

CDMA is used mainly in the U.S., Japan and Korea. It competes with the global system for mobile communications, or GSM standard, the base used in most of the rest of the world.

The next generation LTE standard has been embraced by carriers using both CDMA and GSM. The first LTE networks are being designed and tested now by companies including Verizon Communications Inc., Sweden’s TeliaSonera AB, and Japan’s NTT DoCoMo. LTE will offer more efficient use of bandwidth and higher mobile data connection speeds.

Missing Out

Nortel’s deal with Ericsson is an opportunity missed for Nokia Siemens, said Ferragu, who expected the Finnish-German venture to outbid its Swedish rival.

“It’s not very expensive and for Nokia Siemens it was important to secure a significant market share in North America because it’s in a very weak position there,” the analyst said.

Nokia Siemens’ bid was “opportunistic” and aimed at supporting the progress made in North America in the past 18 months, Chief Markets Operations Officer Bosco Novak said in a statement distributed by PR Newswire today. “Our final offer for Nortel’s assets represented a fair price, and we did not enter this process with a win-at-any-cost mindset,” he said.

Research In Motion Ltd., the maker of the BlackBerry phone, also expressed interest in acquiring the Nortel business. The market for so-called smart phones like the BlackBerry, where users can watch videos and surf the Web, grew 13 percent in the first quarter as the mobile-phone industry overall shrank, according to researcher Gartner Inc.

Nortel, led by CEO Mike Zafirovski, is selling off businesses after filing for bankruptcy protection six months ago. At least 2,500 Nortel employees will be offered positions with Ericsson, Nortel said in a separate statement today. U.S. and Canadian court approvals will be sought at a joint hearing on July 28, and the companies will seek to complete the transaction later this year, it said.

Nortel plans to hold a similar auction for its corporate- networking business this quarter. The company agreed to sell the division to Avaya Inc. for $475 million, pending higher bids.

The Toronto-based company, once North America’s largest phone-equipment maker, filed for protection from creditors in the U.S. and Canada in January. Nortel reported a loss of $5.8 billion last year as customers froze spending on new equipment amid the recession.

Representatives from Nortel and Ericsson will hold a conference call for reporters and analysts on July 27.

To contact the reporter on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net

Last Updated: July 25, 2009 09:56 EDT