Nokia confirmed recent media speculation it was mounting a takeover bid for Alcatel-Lucent, saying in a brief statement it is in “advanced discussions with respect to a potential full combination”.
A tie-up between Nokia and Alcatel-Lucent, which the Finnish company said would take the form of a public exchange offer for the Franco-US vendor, would create a larger rival to take on Ericsson and Huawei – the market leaders in the telecoms equipment space.
Both Nokia and Alcatel-Lucent warned, however, that there was “no certainty at this stage that these discussions will result in any agreement or transaction”.
Chasing the big two
Nokia, shorn of its handset business and focused on mobile broadband equipment, returned to profitability last year. Alcatel-Lucent, too, is showing some signs of recovery under CEO Michel Combes.
Even so, the two companies do not enjoy the same scale as Ericsson or Huawei, and rumours that they might join forces have been floating around for some time.
Nokia Networks drummed up sales of €11.2 billion during 2014 (out of total Nokia group sales of €12.7 billion), while Alcatel-Lucent generated revenue of €13.2 billion.
Ericsson reported revenue of €25.1 billion in 2014, while Huawei’s operator equipment business had revenue of about €23.6 billion (at average exchange rates for the year).
“At one end of the market there is Ericsson, which is the technology leader, and at the other there is Huawei which is the cost leader,” notes Richard Windsor, an analyst and blogger for Radio Free Mobile. “Between them they have created a balance in the market but for anyone caught in the middle, the outlook has always been pretty bleak.”
“As a smaller player,” added Windsor, “Nokia Networks clearly needs more scale and buying the wireless assets of Alcatel-Lucent will help it do that.” (Windsor presumes that the “potential full combination” between Nokia and Alcatel-Lucent is restricted to the US-Franco supplier’s wireless assets.)
Aside from better scale, a tie-up with Alcatel-Lucent would also give the Finnish company better exposure in the US, although Nokia is beginning to make some headway there.
No official mention has been made by Nokia about how it might fund the takeover, or the sums involved, but the reported potential sale of HERE, its navigation business, valued on the company’s books at €2 billion, would obviously help.
And, of course, synergies on paper don’t necessarily work out in practice. Witness the integration difficulties between Lucent and Alcatel, and the break-up of Nokia Siemens Networks.
Another potential spanner in the works is resistance from the French government, which might prove reluctant for a key national business to be sold to a foreign buyer.
However, according to Reuters, France’s economy ministry said today that it had no immediate reaction to a potential tie-up betwen Nokia and Alcatel-Lucent.