Finland’s Nokia announced today it will buy long-term rival Alcatel-Lucent in an all-share deal valued at an estimated EUR15.6 billion ($16.6 billion).
The announcement comes just a day after Nokia confirmed media reports that it was in advanced talks with the French network gear maker.
The combined company, which will have more than 40,000 R&D staff, will give it the scale to better compete against market leaders Ericsson and Huawei.
According to Bernstein Research, the new company will have a 35 per cent share of the global wireless market, putting it ahead of Huawei (20 per cent) but still behind Ericsson (40 per cent), Reuters reported.
Rajeev Suri (pictured), Nokia’s president and CEO, said the new company brings together the R&D engine of Nokia with that of Alcatel-Lucent and its iconic Bell Labs. “We will combine this strength with the highly efficient, lean operations needed to compete on a global scale. We have hugely complementary technologies and the comprehensive portfolio necessary to enable the internet of things and transition to the cloud,” he said.
The Alcatel-Lucent brand will die, with the combined company to be called Nokia Corp and headquartered in Finland. In an apparent effort to appease any resistance from the French government, which might prove reluctant for a key national business to be sold to a foreign buyer, a statement talked up the new venture’s “strong presence in France.” Risto Siilasmaa is expected to serve as chairman and Suri will be CEO.
The merged company is expected to lead to EUR900 million in operating cost savings on a full year basis in 2019 and a reduction of about EUR200 million in interest expenses on a full year basis in 2017. These are in addition the planned savings from the Shift plan this year.
Both companies’ board of directors have approved the terms of the proposed transaction, which is expected to close in the first half of next year once it is approved by Nokia’s shareholders and has the required regulatory approvals.
Suri said the company has already put together an integration committee and will name an integration leader this week and start looking at portfolio rationalistion (a move which will spark the prospect of job cuts).
Asked about the timing of the deal in an investor call, he said that both companies have completed recent restructurings and now have momentum in the market. “We both have been stronger in the last two years, compared to the first five. We are now starting from a position of strength and ready to hit the ground running,” Suri claimed.
Another key driver, he said, is the convergence of wireless and fixed, resulting in few mobile pure-plays, which “means we needed a strong position in fixed and IP routing”.
Nokia also said today that it is exploring the sale of its HERE mapping business (which would help fund the Alcatel-Lucent acquisition). Bloomberg reported on Monday that Nokia was looking at offloading HERE as it looks to focus on its core networks unit and paying back debt.
Richard Windsor, an analyst and blogger for Radio Free Mobile, expressed concern about any decision to sell HERE to fund the acquisition, claiming a sale would be a disservice to shareholders.
He noted that it is one of only two credible high-quality mapping platforms and the “only independent choice”. As Google Maps deals expire, he sees an opportunity for Nokia to expand its market share and sell HERE at a much higher price.