Stockholm: Ericsson AB is open to a transaction to counter a move by rivals Nokia Oyj and Alcatel-Lucent SA to combine and overtake the Swedish company as a leading provider of network equipment, said people familiar with the plans.

Chief executive officer Hans Vestberg plans to gather with his top managers next month to discuss strategy, and a key area is what Ericsson can do to respond after Nokia’s $16.6 billion acquisition of Alcatel-Lucent, said one of the people, who asked not to be identified discussing private deliberations.

The shift in thinking at Ericsson, which has so far relied on smaller purchases, underscores a need by network providers to offer a more complete range of products. Phone carriers are expanding to wireless, broadband and video access and are seeking vendors who can build networks for all such services.

“I see no reason why we, given the right preconditions, would exclude a larger deal," Ericsson Chairman Leif Johansson said in an interview this month. “But as you know, there aren’t that many left."

Ericsson was close to making a bid for Alcatel-Lucent late last year, but walked away because of concern that a transaction wouldn’t bring enough savings and other benefits, said one of the people. In April, Alcatel-Lucent agreed to be bought by Nokia, a combination that’s set to surpass Ericsson in sales.

A spokesman for Stockholm-based Ericsson declined to comment on the company’s acquisition plans.

Shares of Ericsson rose as much as 1.1% and advanced 0.8% to 93.90 kronor at 10:14 a.m. in Stockholm.

Action needed

Ericsson is the world’s largest maker of wireless-network equipment, but that market isn’t expanding. Vestberg has in recent years repeatedly said he prefers organic growth, and last month told Dagens Industri newspaper in an interview that Ericsson’s strategy is to only buy smaller companies.

“They haven’t grown much in the last four or five years and their revenue has been as flat as a pancake," said Janardan Menon, a Liberum Capital Ltd. analyst. “You have an industry in transition where you’re getting a greater degree of convergence and more technological disruption. You put all that together and it makes it even more imperative for Ericsson to do something."

The network-gear market is in transition as phone companies demand wireless and fixed solutions for moving data to and from mobile phones, smart-TVs, laptops and even kitchen appliances and wearable devices—anything that can connect to the Internet.

Fixed-Line disadvantage

Nokia’s purchase of Alcatel-Lucent gives the Finnish acquirer more fixed-line assets as demand for video services such as Netflix surges. China’s Huawei Technologies Co. also provides both wireless and fixed-line networks.

Highlighting how Ericsson tried to make a deal with Alcatel-Lucent work, it also evaluated a joint bid with Nokia with a goal of splitting up Alcatel-Lucent’s assets, one of the people said.

A Nokia representative declined to comment. Alcatel-Lucent had held talks with many companies before it agreed to a sale to Nokia, chairman Philippe Camus told shareholders Tuesday.

With Alcatel-Lucent off the table, Ericsson has fewer options to gain the scale needed to keep its leading position.

Pierre Ferragu, an analyst at Bernstein in London, said a “natural route" for Ericsson would be to buy Juniper Networks Inc., a maker of Internet routers, and optical-networks maker Ciena Corp. Either target could help Ericsson “restore old order and avoid being marginalized," Ferragu said.

Ericsson isn’t confident that Juniper’s technology is what it needs in an increasingly software-dominated industry, said one of the people.

“Ericsson can’t seem to grow fast enough on the fixed side so scaling organically to compete isn’t really possible," Mathias Lundberg, an analyst at Swedbank AB in Stockholm, said in a phone interview. “Nokia will be a strong rival if they can integrate as planned, so there’s naturally pressure for Ericsson to seriously consider their options." Bloomberg

With assistance from Amanda Billner and Kim McLaughlin in Stockholm and Marie Mawad in Paris.

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