updated 12/20/2006 8:08:15 AM ET 2006-12-20T13:08:15

Redback Networks Inc., which makes routers used to direct data over broadband networks, said late Tuesday it has agreed to be acquired by Swedish mobile phone equipment maker LM Ericsson for $2.1 billion in cash.

Analysts said the deal reflects a growing need among service providers to upgrade their networks to accommodate bandwidth-devouring downloads for consumers and increasingly deliver that content to mobile devices.

Redback makes so-called "edge" routers, which are used to connect computers to the Internet and are increasingly being used to simultaneously handle the data, voice, and video downloads demanded by consumers. Stockholm-based Ericsson is the world's largest maker of mobile phone networks.

Redback Chief Executive Officer Kevin DeNuccio said the deal will allow both companies to capitalize on the need of Internet providers and telecom companies to upgrade their networks to handle the massive bandwidth requirements of those services.

"It's a huge market for the routing technology necessary to build out these networks, and it's really video driving the need for the infrastructure changes," he said in an interview. "I don't view this as an ending, I view it as a perfect match of the key technologies that will be necessary in the future."

Ericsson is paying about $25 per Redback share, an 18 percent premium over Redback's closing price of $21.17 on Tuesday on the Nasdaq Stock Market.

The deal was announced after the market closed, and shares of San Jose-based Redback gained more than 17 percent, or $3.63, in after-hours trading to $24.80.

Ericsson shares were up 4 cents to $40.66 in after-hours trading on the Nasdaq.

The deal is expected to be completed in early 2007. Redback's management team will stay in place, and the company will operate as a wholly owned subsidiary of Ericsson.

Redback has about 800 employees, and DeNuccio said no layoffs were planned.

"This is not about cost synergies, this is about growth," he said.

Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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