Nokia, AlcaLu tie-up gets French backing, but regulatory hurdles remain

Nokia, AlcaLu tie-up gets French backing, but regulatory hurdles remain

16 APR 2015

French president Francois Hollande backed Nokia’s planned €15.6 billion acquisition of Alcatel-Lucent, on the proviso there would be no job cuts in France and more researchers hired, but there is still some way to go before authorities elsewhere give the proposed tie-up their blessing.

Alcatel-Lucent CEO Michel Combes confirmed on French radio, as reported by Reuters, that Nokia had promised Hollande the addition of 500 research jobs in France, and that there would be no more job cuts in terms of volume. Combes added, however, that there “may be changes in the nature of the jobs”.

Nokia also committed to spend €100 million to back French start-ups as part of the deal.

Winning French government backing is an important first step if Nokia is to realise its plan of acquiring Alcatel-Lucent and create an infrastructure supplier with the scale and R&D heft that can better compete with market leaders Ericsson and Huawei.

Appeasing authorities
Reducing the number of major telecoms suppliers, however, may well trouble regulators. The Financial Times (FT) notes that gaining approval in the US will be a key hurdle to overcome, since a merger of Nokia and Alcatel-Lucent would mean Ericsson has only one major competitor to deal with (Huawei has long found it difficult to get a strong foothold in the US owing to political resistance and fears over national security).

The FT further reports that the deal is likely to be subject to a national security review run by the Committee on Foreign Investment in the United States (Cfius). “It’ll definitely get covered, because there are definitely national security issues involved,” said a former senior Cfius official quoted by the UK newspaper.

A Cfius review, typically long, drawn out affairs, might well push back the length of time Nokia CEO Rajeev Suri thinks likely to close the deal, which is between 9 and 12 months.

Chinese regulators could also prove a sticking point. Nokia would own Alcatel-Lucent’s 50 per cent stake alongside the Chinese state, and it is no doubt still fresh in the minds of Nokia executives that gaining regulatory approval in China for the sale of its handset business to Microsoft was far from straightforward.

In a clear attempt to pre-empt what Combes would no doubt view as over-fussy meddling from Brussels, he said at a press conference that he hoped “Europe accompanies the development and strengthening of  a group such as Nokia, a European group and one that has roots in Europe”.

He added that it was “natural that the whole of European governments accompany a project of this type”.

For his part, Suri said he was confident the transaction would receive antitrust approval in the EU, China and the US.

“We have plenty of experience in doing that . . . we understand the process very well,” he said, according to the FT.

Assuring shareholders
Shareholders will need convincing also that Nokia and Alcatel-Lucent can integrate successfully and achieve the €900 million in cost synergies targeted for 2019.

Executives from both companies may well argue that they have gained valuable, albeit painful, experience of working closely with others through the merger of Alcatel and Lucent, and the short-lived joint venture between Nokia and Siemens.

Achieving cost synergies will also, inevitably, mean job cuts. If France has escaped the fall of the axe, India’s Economic Times reports that lay-offs are likely at Alcatel-Lucent’s unit in the country as there is a strong overlap with Nokia Networks.

Alcatel-Lucent has some 100 sales people in India and about 2,500 engineers and scientists working at R&D labs in three cities — Gurgaon, Chennai and Bengaluru.

No details have yet emerged as to how far the merged entity, with 114,000 employees, would trim its workforce and where the cuts would be.

Author

Ken Wieland

Ken has been part of the MWC Mobile World Daily editorial team for the last three years, and is now contributing regularly to Mobile World Live. He has been a telecoms journalist for over 15 years, which includes eight...More

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