No one has time for dial-up Internet. And for at least two players in the wireless-and-telecommunications equipment market, the need for speed has trumped current convention.
Cisco and Ericsson, striving to better compete against Chinese rival Huawei Technologies and the soon-to-be-merged pairing of Nokia and Alcatel-Lucent, wanted to stay nimble. So rather than add to this year’s tally of mega-deals, the duo on Monday struck a strategic alliance that will, among other things, let them share patents and cross-sell products with an eye to adding $1 billion or more to each company’s sales by 2018.
The anti-merger allows them to sidestep the awkward months of waiting for various regulatory approvals attached to cross-border deals and start cross-selling their products immediately. That’s a luxury that Nokia and Alcatel-Lucent don’t have: They announced their own deal 209 days ago and are still yet to cross the finish line.
"We frankly don’t believe that these large mergers work all that effectively," Cisco CEO Chuck Robbins said in an interview with Bloomberg TV while Ericsson CEO Hans Vestberg echoed his counterpart in a phone interview with Bloomberg's Adam Ewing, saying, "I don't believe in big mergers -- this is by far the best solution you can get."
There’s no doubt Robbins and Vestberg are talking their own book, but their maneuver has kept them both at the helm of their respective companies, meaning they can avoid the struggle for leadership and other “social issues” that can trip up mergers. It has also allowed them to circumvent the wrath from shareholders attached to a cash or stock offer: Neither company is diluting shareholders or putting their balance sheet at risk by borrowing to fund an acquisition that could turn out to be a dud. If their collaboration delivers the projected revenue growth and cost savings in areas such as research and development, manufacturing and production and sales, Cisco and Ericsson could be paving the way for copycats.
Of course, not all strategic alliances flourish. Microsoft’s 2011 venture with Nokia to create “market-leading mobile products” fell flat and led the software giant to buy the Finnish company’s devices business some three years later.
But if the Cisco and Ericsson alliance proves a success, anti-mergers could in time become the new black.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
To contact the author of this story:
Gillian Tan in New York at firstname.lastname@example.org
To contact the editor responsible for this story:
Beth Williams at email@example.com