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Sony to Acquire Ericsson’s Share of Mobile-Phone Venture for $1.5 Billion

Sony Corp. (6758) agreed to buy Ericsson AB’s 50 percent stake in their 10-year-old mobile-phone venture to integrate the smartphone business with its gaming and tablet offerings.

Ericsson will get 1.05 billion euros ($1.5 billion) in cash for its shares in Sony Ericsson Mobile Communications AB, the Stockholm-based company said today. The proceeds from the deal are higher than the book value of Ericsson’s stake. The Swedish company rose 6.1 percent to 70.75 kronor in Stockholm trading. Sony climbed 5.4 percent to 1,650 yen in Tokyo.

The deal will help Sony tap demand for smartphones as Japan’s largest exporter of consumer electronics is seeking a new earnings driver after losing a total of 476.3 billion yen ($6.3 billion) from its main television operation in the past seven fiscal years. Full control of the venture will add smartphones using Google Inc. (GOOG)’s Android system to Sony’s device business, while freeing Ericsson to concentrate on sales of wireless transmission equipment and services.

“The deal will increase management freedom at the mobile phone unit to speed up development of new products,” said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments Ltd. in Tokyo, which manages about $28 billion in assets. “It’s up to products whether Sony can survive in the wireless industry.”

Android Focus

Sony Chairman Howard Stringer said he will change the mobile venture’s brand following the deal. Sony Ericsson has turned to smartphones based on Android to lessen market share losses amid competition from Apple Inc.’s iPhone. The company aims to distinguish itself from rivals through its integration with Sony’s entertainment range and distinctive hardware designs such as the Xperia Play, an Android phone with Playstation console controls and games.

Ericsson and Sony set up the venture on Oct. 1, 2001, giving themselves five years to dethrone Nokia Oyj (NOK1V) as the world’s biggest mobile-phone maker. Sony Ericsson’s market share slid to 1.7 percent in the second quarter from 3 percent a year earlier, according to researcher Gartner Inc.

Ericsson will have a “positive capital gain” from the deal as the proceeds exceed the book value of its stake, Chief Executive Officer Hans Vestberg said on Bloomberg Television’s “Last Word” with Maryam Nemazee.

Ericsson carried its share of the venture at 2.4 billion Swedish kronor ($372 million) as of the end of last year, declining from 6.7 million kronor in 2008, according to its annual report.

The 1.05 billion euros for Ericsson’s stake are less than predicted by RBS analyst Didier Scemama, who this month said that a valuation of about 1.3 billion euros would be “fair.”

‘Past Its Time’

The venture “was pretty much past its prime” because Ericsson is focusing more on infrastructure and managed services and less on devices, said Duncan Clark, Beijing-based chairman of BDA China, which advises technology companies. Sony views smartphones, which can control TVs and play games, as a way to strengthen its position against competitors including Samsung Electronics Co., he said.

“Sony should be a big player in the digital home,” Clark said. “The mobile phone is becoming much more central to electronics. If they are going to be successful and fend off Samsung, they need to do this.”

Following the deal, Sony may consider merging its handset and tablet businesses, said Janardan Menon, an analyst at Liberum Capital in London.

“They are a consumer electronics company where their mainstream is not faring well,” Menon said.

Exclusive Movie Access

Sony, the maker of Vaio laptops, last month started offering its first tablet computer that features a 9.4-inch LCD display as well as front and rear cameras, in a pursuit of Apple whose iPad spurred a surge in demand.

“TVs aren’t going to go away but consumers will watch content on smartphones, they will watch it on tablets,” Stringer said in an interview in London today. “We have the opportunity to give people something to watch and they won’t be able to get it anywhere else as far as they can get it here.”

Sony will be able to “deliver a lot of movies early” through its Sony Pictures Entertainment Inc. film studio business, he said.

Stringer has previously sought to end losses by outsourcing production to contract manufacturers and eliminating thousands of jobs.

Asian Demand

The transaction is the fourth biggest for the Japanese electronics maker, topping the company’s purchase of Sony BMG Music Entertainment from Bertelsmann AG in 2008, according to Bloomberg data.

Sue Tanaka, a Tokyo-based spokeswoman for Sony, said the company is looking at various options to finance the deal. Sony has enough cash to pay for the stake, she said.

The transaction, subject to authority approvals, will probably be completed in January 2012, the companies said.

Sony Ericsson on Oct. 14 posted third-quarter sales and pretax profit that exceeded analysts’ forecasts after sales climbed in Asia while Western European revenue suffered from withering consumer confidence.

Asia sales gained 81 percent to 985 million euros while Europe, Middle East and Africa declined 43 percent to 480 million euros. Sony Ericsson has about 12 percent of the global unit market for Android handsets, it said at the time.

Sony Ericsson also has more than 4,000 of its own telecom patents and has a license to all the Nortel Networks Corp. patents that were auctioned this year, the venture said in August. Both Ericsson and Sony were part of a group, which included Apple and Microsoft Corp., that agreed in July to pay $4.5 billion for a portfolio of patents from the breakup of Nortel.

A sale of the venture would be positive for Ericsson since it would reduce the risk of additional funding obligations, Fitch Ratings said Oct. 7. Ericsson said today SEB Enskilda is acting as its sole financial adviser in the transaction.

-- With assistance from Naoko Fujimura in Tokyo and Ed Lococo in Beijing. Editors: Simon Thiel, Kenneth Wong.

To contact the reporters on this story: Jonathan Browning at jbrowning9@bloomberg.net; Mariko Yasu in Tokyo at myasu@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net; Michael Tighe at mtighe4@bloomberg.net

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