SAT (Stockholms Allmänna Telefonaktiebolag) and L M Ericsson were merged in the summer of 1918 and became Allmänna Telefonaktiebolaget L M Ericsson. The telephone operator SAT and the equipment manufacturer Ericsson had been closely linked for many years. SAT had acquired a significant share of Ericsson in 1901, when the operator sold its manufacturing operations to Ericsson in exchange for shares. As a consequence of the sale, SAT gained representation on the Ericsson board on which Henrik Thore Cedergren served, for example. From 1905, the two companies were also involved in developing a telephone operating company in Mexico. In addition, following the sale of its own manufacturing operations, SAT was an important Ericsson customer. The merger in 1918 was therefore a natural step in a long-term process that had brought the two companies closer together.
The possibility of a merger had been discussed sporadically since 1917 by the chairmen of the two companies, Arvid Lindman (Ericsson) and Fredrik Pegelow (SAT/AB Stockholmstelefon). Negotiations appear to have gained momentum in conjunction with confidential discussions initiated when SAT's telephone operations within AB Stockholmstelefon were sold to Televerket, the Swedish PTT. Plans to eliminate, or at least change, the competitive situation with respect to telephony prevailing in the Stockholm area between the public telegraph service and AB Stockholmstelefon had been discussed since 1901. All plans were blocked, however, either due to lack of support from the Swedish Parliament or difficulties in reaching agreement between the competitors.
The renewed discussions that started in March 1918 were conducted in the shadow of the war raging in Europe. SAT and Ericsson were affected by world events, in particular the Russian revolution, which led to the loss of substantial assets for both companies. World War I also affected the telephone network in Stockholm through a shortage of materials and personnel at the same time as both traffic and the number of subscribers were increasing. The uncertainty of these times contributed to finally realizing plans to restructure telephony in the Stockholm area.
On May 8, 1918, the boards of directors of SAT and Ericsson reached an agreement for a merger subject to the condition that the Swedish Parliament approved the proposal that had been put forth the day before for the purchase of AB Stockholmstelefons telephone operations by Televerket. Arvid Lindman appears to have played a key role in this connection. In 1906, when he was the general director of the public telegraph service, he had failed to secure parliamentary approval for a similar proposal.
Now, 12 years later, he was not only chairman of the board of Ericsson, but also party leader for the Conservative Party, and could act behind the scenes. The purchase contract thus included a form of payment that would allow Linndmans fellow party members to approve a purchase that in reality would grant a monopoly on Swedish telephony to Televerket, while providing the merged company with a substantial equity contribution.
The proposal was accepted by Parliament in June, despite sharp criticism. In addition, the proposed merger between Ericsson and SAT was approved by the annual general meetings of the two companies.
The path was now clear for a merger of SAT and Ericsson, which took place in July 1918.