In the summer of 1918, L M Ericsson and Stockholms Allmänna Telefonaktiebolag (SAT) merged. The new company, Allmänna Telefonaktiebolaget L M Ericsson, received a substantial capital contribution over the next few years, as the Swedish government paid nearly SEK 50 million for the telephone operations of SAT's subsidiary, AB Stockholmstelefon. This increase in capital was extremely important for the company, particularly in view of the fact that the huge losses in Russia were written off over the following years. According to one estimate, total losses in Russia for the newly merged Ericsson amounted to SEK 80 million.
The merger also enriched the business through the combination of other assets. Patents from the two companies were integrated, which had a major impact on the development of the 500-switch then in progress, for example. Expertise in both equipment manufacturing and telephone operations was also combined. This greatly benefited not only equipment manufacturing operations, but also for that part of operations undergoing rapid growth in the 1920s in which the company operated telephone networks under concessions.
But combining the two companies also meant the start of new problems. When SAT's founder H T Cedergren died in 1909, ownership of SAT was transferred in large part to a foundation and to his family. With the merger in 1918, this ownership block came to have a controlling interest. Furthermore, the shares had in turn been pledged as collateral for participation in new share issues. When the Ericsson share was then written down as a result of losses in Russia, the loans became burdensome for the foundation and for Cedergren's family. These economic pressures resulted in the sale of these shareholdings in 1925 to Karl Henrik Wincrantz with Ivar Kreuger as a silent partner and owner. In this manner, Ericsson in late-1920s was increasingly drawn into Kreuger's financial sphere, which would later create considerable turmoil in the company.
Finally, the merger can also be seen as an important event from an even longer perspective. SAT's sale of telephone operations in Stockholm and the simultaneous merger with Ericsson was important because it created a more consolidate structure in the Swedish telephone industry. On the one hand, there was now Televerket, the Swedish PTT, which in principle had a monopoly on telephone services in Sweden, while the newly merged Ericsson was a company that manufactured telecommunications equipment and was active as a telephone operator outside Sweden.
This meant less competition between Ericsson and Televerket. Instead, Televerket became a more important customer for Ericsson, with intensive joint development work as a result. The events in 1918 thus laid the foundation for a long period of development cooperation with the state-owned monopoly in Swedish telephony that followed. This was an era that would only slowly close during the final decades of the century.
Author: Claes-Fredrik Helgesson