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Sony Corp. has agreed to buy Ericsson AB’s 50 percent stake in their 10-year-old mobile phone venture to integrate the smartphone business with its gaming and tablet offerings.

Ericsson will get €1.05 billion (¥113 billion) in cash for its shares in Sony Ericsson Mobile Communications AB, the Stockholm-based company said.

The proceeds from the deal are higher than the book value of Ericsson’s stake.

The deal will help Sony tap demand for smartphones as Japan’s largest exporter of consumer electronics is seeking a new earnings driver after losing a total of ¥476.3 billion from its main television operation in the past seven fiscal years. Full control of the venture will add smartphones using Google Inc.’s Android system to Sony’s device business, while freeing Ericsson to concentrate on sales of wireless transmission equipment and services.

“The deal will increase management freedom at the mobile phone unit to speed up development of new products,” said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments Ltd. “It’s up to products whether Sony can survive in the wireless industry.”

Sony Chairman Howard Stringer said he will change the mobile venture’s brand following the deal. Sony Ericsson has turned to smartphones based on Android to lessen market share losses amid competition from Apple Inc.’s iPhone. The company aims to distinguish itself from rivals through its integration with Sony’s entertainment range and distinctive hardware designs, such as the Xperia Play, an Android phone with PlayStation console controls and games.

Ericsson and Sony set up the venture Oct. 1, 2001, giving themselves five years to dethrone Nokia as the world’s biggest mobile phone maker. Sony Ericsson’s market share slid to 1.7 percent in the second quarter from 3 percent a year earlier, according to researcher Gartner Inc.

Ericsson will have a “positive capital gain” from the deal as the proceeds exceed the book value of its stake, Chief Executive Officer Hans Vestberg said.

Ericsson carried its share of the venture at 2.4 billion Swedish kronor ($372 million) as of the end of last year, declining from 6.7 million kronor in 2008, according to its annual report.

The €1.05 billion for Ericsson’s stake are less than predicted by RBS analyst Didier Scemama, who said this month that a valuation of about €1.3 billion would be “fair.”

The venture “was pretty much past its prime” because Ericsson is focusing more on infrastructure and managed services and less on devices, said Duncan Clark, the Beijing-based chairman of BDA China, which advises technology companies. Sony views smartphones, which can control TVs and play games, as a way to strengthen its position against competitors including Samsung Electronics Co., he said.

“Sony should be a big player in the digital home,” Clark said. “The mobile phone is becoming much more central to electronics. If they are going to be successful and fend off Samsung, they need to do this.”

Following the deal, Sony may consider merging its handset and tablet businesses, said Janardan Menon, an analyst at Liberum Capital in London.

“They are a consumer electronics company where their mainstream is not faring well,” Menon said.

Sony started offering its first tablet computer last month, featuring a 9.4-inch LCD display as well as front and rear cameras, in pursuit of Apple, whose iPad spurred a surge in demand.

“TVs aren’t going to go away, but consumers will watch content on smartphones, they will watch it on tablets,” Stringer said in an interview in London on Thursday. “We have the opportunity to give people something to watch and they won’t be able to get it anywhere else as far as they can get it here.”

Sony will be able to “deliver a lot of movies early” through its Sony Pictures Entertainment Inc. film studio business, he said.

Stringer has previously sought to end losses by outsourcing production to contract manufacturers and eliminating thousands of jobs.

The transaction is Sony’s fourth-biggest, topping the company’s purchase of Sony BMG Music Entertainment from Bertelsmann AG in 2008, according to Bloomberg data.

Spokeswoman Sue Tanaka said the company is looking at various options to finance the deal. Sony has enough cash to pay for the stake, she said.

The transaction, subject to authority approvals, will probably be completed in January, the companies said.

Sony Ericsson on Oct. 14 posted third-quarter sales and pretax profit that exceeded analysts’ forecasts after sales climbed in Asia while Western European revenue suffered from withering consumer confidence.

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