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Rights offering in Ericsson

Not to be distributed into the United States, Australia, Canada or Japan. For the German market: Notification pursuant to Section 15 WpHG

Press release  |  Apr 22, 2002 05:39 (GMT +00:00)

- Intention to raise approximately SEK 30 billion

- Both A- and B-shares will carry rights to new B-shares

- The offering is expected to be carried out before the end of third quarter

- Industrivärden and Investor have expressed their full support for the proposed offering

Proposed authorization for rights offering
The board of Ericsson has resolved that an Extraordinary General Meeting of shareholders be called for 6 June 2002, to authorize the Board to launch a rights offering to the company's shareholders. The intention is that the rights offering shall raise approximately SEK 30 billion. It is proposed that the Board be authorized to formulate the final terms and conditions of the rights offering in order to provide for flexibility in the timetable, especially as Ericsson is subject to regulatory approvals in several jurisdictions. The terms will be set at the formal launch of the rights issue taking account of the prevailing share price, market conditions and prudent market practice. The proposal is that shares of both series A and series B will carry rights to subscribe for new shares of series B. The rights offering is expected to be carried out before the end of the third quarter 2002.

Industrivärden and Investor who together hold approximately 7% of the capital and approximately 67% of the votes in Ericsson have expressed their support for the proposed rights offering and stated that their intention is to subscribe fully for their rights.

Background and rationale
We strongly believe that the global telecom equipment market, particularly wireless communications, is a long-term growth market. However, 2001 was a challenging year for the whole industry, the beginning of 2002 has shown no improvement and the near term market outlook is uncertain.

In response to this we have aggressively adjusted our organization and cost base. The efficiency program launched last year is now successfully concluded and has lowered our costs by SEK 20 billion annually. Further annual cost savings of SEK 10 billion have already been initiated in response to the continuing difficult market conditions. In addition, we have identified another SEK 10 billion of annual cost savings to be implemented. As a result, at the end of 2003 our cost base is expected to be SEK 40 b. lower than at the beginning of 2001. Going forward, we are committed to continue to focus on profitability and to adjust our organization and cost base to levels appropriate for expected market conditions.

In the market place we have increased our focus on mobile infrastructure and we believe that our competitive position in wireless systems has never been stronger. We have leading market positions in 2G, 2.5G and 3G mobile systems. We believe that the combination of internal cost control and a strong market position will mean that we will emerge from this market downturn in an even stronger competitive position.

However, in order to sustain and strengthen our leading market position, we also need a robust financial position with a strong equity/assets ratio and ample liquidity. We believe that in an environment with increased business risk we would not be acting in the interests of all our constituencies - shareholders, customers and employees - if we did not manage our financial risk prudently in order to have increased security if poor market conditions continues or deteriorate further.

We also need financial strength in order to have the ability to leverage our leading market position and allow strong expansion and ongoing strategic flexibility.

The approximate size of the proposed offering is SEK 30 billion. This capital injection will eliminate our net debt position and give us a pro forma equity/assets ratio of 38% as of March 31, 2002. Adjusted for the temporarily increased cash balance, the pro forma equity/assets ratio as of the same date would have been approximately 43%, well in line with our long-term goal of more than 40%.

Morgan Stanley, Enskilda Securities, Goldman Sachs International, Handelsbanken Securities and Schroder Salomon Smith Barney have been appointed as financial advisors to Ericsson for the proposed rights offering.

Ericsson is shaping the future of Mobile and Broadband Internet communications through its continuous technology leadership. Providing innovative solutions in more than 140 countries, Ericsson is helping to create the most powerful communication companies in the world.