Ericsson Shares Jump as Board Ousts CEO Vestberg

The move follows another round of disappointing quarterly results and pressure from leading shareholders.
By Laura Board ,

Swedish telecom equipment maker Ericsson (ERIC) - Get Report on Monday abruptly ousted CEO Hans Vestberg just days after announcing disappointing second-quarter earnings and amid dissatisfaction with the executive's  turnaround plan.

After seven years at the helm Vestberg stands down immediately, but "remains at the company's disposal," Ericsson said. He will be replaced for the moment by CFO Jan Frykhammar until a permanent CEO is found, while group treasurer Carl Mellander will take the CFO role for the time being.

The move comes after Ericsson on July 19 missed second-quarter revenue estimates by 7% as earnings per share fell by 43% year-on-year. At the time Vestberg announced new cost cuts, but leading shareholders Investor and Industrivaerden  reportedly pushed for new  leadership. Industrivaerden had previously publicly spoken out against the group's strategy.

Ericsson chairman Leif Johansson said that "in the current environment and as the company accelerates its strategy execution, the board of directors has decided that the time is right for a new leader to drive the next phase in Ericsson's development."

Ericsson shares were up 5.2% in early trading in Stockholm on Monday at Skr66.70. The shares had previously lost almost a quarter of their value in the past year.

Liberum Capital analysts maintained their hold recommendation on the stock after the announcement.

They noted: "We welcome the change given our view that Ericsson needs a major shakeup in its cost structure to create value, which the management seemed reluctant to do. However, the issues facing the company are complex and we adopt a wait and watch stance until the new CEO is identified and announces his/her strategies."

Ericsson sales have fallen for seven consecutive quarters when stripping out currency benefits. It has been attempting to restructure its business in response to a decline in profitability, challenges in Europe, the U.S. and China as well as increasing competition in mobile and fixed-line network infrastructure and services.

But an April reorganization plan, centered on dividing the company into five smaller business units and cutting costs, was seen as insufficient to address its problems, as was last week's announcement to seek new cost savings.

Some analysts had called for disposals at Ericsson, including of its optical transport and IP routing divisions

In addition to the financial and operational pressures, Ericsson faces corruption investigations in jurisdictions including the U.S. and Greece

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