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Last Update: 18-Mar-13 08:47 ET
STMicro (STM) shares rise 4% following news that co and Ericsson (ERIC) agree on way forward for JV
Ericsson (ERIC $13.05 -0.23) and STMicroelectronics (STM $7.96 +0.32) announced an agreement on the way forward for the joint venture ST-Ericsson. As communicated by the parent companies in December 2012, both have been working together toward a strategic solution for the JV. After months of intensive joint work, the parent companies have selected the strategic option which maximizes their respective future prospects and growth plans. The main steps agreed upon to split up the JV are the following: Ericsson will take on the design, development and sales of the LTE multimode thin modem products, including 2G, 3G and 4G multimode ST will take on the existing ST-Ericsson products, other than LTE multimode thin modems, and related business as well as certain assembly and test facilities Starting the close down of the remaining parts of ST-Ericsson. Additional considerations: The formal transfer of the relevant parts of ST-Ericsson to the parent companies is expected to be completed during the third quarter of 2013, subject to regulatory approvals. After the split up it is proposed that Ericsson will assume ~1,800 employees and contractors, with the largest concentrations in Sweden, Germany, India and China. It is also proposed that ST will assume ~950 employees, primarily in France and in Italy, to support ongoing business and new products development within ST. The agreement is fully in line with ST's financial model target of an operating margin of 10 percent or more and with plans to reduce quarterly net operating expenses to an average quarterly rate in the range of $600-650 mln by the beginning of 2014. In addition, as a result of the agreement, ST expects to incur cash costs, including the covering of ST-Ericsson's ongoing operations during the transition period and its restructuring costs, in the range of ~$350-450 mln, narrower than the range provided at the end of January 2013.
