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Ericsson, the telecoms equipment group said on Monday that it had signed a deal to sell its defence business to Saab, the Swedish aerospace and defence group, for SKr3.8bn ($521.5m).

Under the terms of the deal, Saab will take control of Ericsson Microwave Systems and Ericsson’s 40 per cent holding in Saab Ericsson Space subject to regulatory approval. However, Ericsson said that it would retain control of the national security and public safety business as well as parts of the power systems business.

The deal will affect about 1,250 employees and is expected to close in September. Ericsson said that the benefit from the deal would roughly offset the costs associated with the acquisition of Marconi, giving a neutral effect on Ericsson’s income after financial items for 2006.

“We are very pleased with this agreement since it gives EMW and its employees good possibilities to expand through growth through Saab’s strong market presence,” said Carl-Henric Svanberg, chief executive. “Also the EMW employees will now belong to a company with this area as a core business.”

EMW provides radar, command and control systems such as Arthur, the weapon locating system, Giraffe, the air surveillance system and Erieye, the operation airborne surveillance system.

Mr Svanberg said that radar development had little in common with its core business of telecommunications, but added that he was “very confident” about the prospects for national security and public safety, “where the development has just recently started to take off”.

The two companies said that they planned to evaluate opportunities for future cooperation in those divisions, “where the companies’ relative strengths are complementary”.

Ake Svensson, Saab group chief executive, said: “We are delighted to welcome EMW’s very talented employees to Saab. EMW makes a perfect fit into our business and we foresee good growth opportunities going forward for the strong combined product offering.”

In early trading, neither share price moved significantly, with Saab up slightly at SKr162 and Ericsson unchanged at SKr22.

Copyright The Financial Times Limited 2019. All rights reserved.

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