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Ericsson, the Swedish telecoms equipment company, confirmed on Tuesday it would purchase the majority of the assets of UK rival Marconi for £1.2bn (€1.77bn).

The price includes £675m the UK pensions regulator said Marconi must use to cover pensions liabilities.

Marconi shareholders will receive 275p per share or close to £577m in cash in the first quarter of 2006, close to the price the shares were trading at before the company announced it was in takeover talks this summer. Shares rose 3 per cent to 362p, valuing the company at about £760m.

Ericsson, which is looking to strengthen its fixed-line operations, will purchase all Marconi’s network equipment business, including research and development operations and the data networking business in the US.

On Tuesday, Carl-Henric Svanberg, chief executive, said “significant” job losses following the integration of the Marconi business would be “unavoidable”. Marconi currently employs 6,500 people and the Swedish chief executive said cuts of between 15 and 20 per cent would be needed to rationalise the business. Ericsson shares added 0.4 per cent to SKr26.60.

Marconi, which will be renamed Telent, will continue as an independent concern, retaining its UK services business, an operation with annual sales of about £350m. It will retain the company's cash balance, which was just under £300m at the end of March, and will continue to retain liability for the pensions deficit. Under terms agreed with the pensions regulator, Marconi must commit £185m to the pension fund immediately after the deal. It must also keep £490m in an escrow account.

The gap between the pension deficit revealed by Marconi's 2005 accounts of £109m and its actual shortfall illustrates the task companies face trying to make good on pension deficits.

The deal will end a sales process that started in April after Marconi lost part of a £10bn BT network contract, known as 21CN, to its Swedish rival, forcing the UK group to accept it no longer had the scale to survive on its own. Marconi had held talks with a number of parties over the sale of the business, but the pension issue is thought to have put off most potential bidders.

Mike Parton, chief executive, recognised the company had faced difficulties but said the sale to Ericsson was good for Marconi.

“Despite the major upheavals in our industry over the last four years, we have continued to develop and bring to market truly world class products.

He added: “The proposed transaction with Ericsson fully recognises the significant value of Marconi’s excellent product portfolio, and the people who are responsible for taking those products forward.”

The move will allow Ericsson to strengthen its fixed-line business. The Swedish company has focused on the mobile infrastructure market as part of a remarkable turnaround under the leadership of Mr Svanberg.

Marconi was advised by Morgan Stanley, Lazard and JP Morgan Cazenove. Ericsson was advised by Enskilda.

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