Nokia To Buy Alcatel-Lucent For £11.2bn

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Nokia Rajeev Suri 1

Nokia says new merged company will be better equipped to compete in fixed and mobile markets

Nokia is to buy Alcatel-Lucent in an all-share deal worth up to €15.6 billion (£11.2bn), with the two companies claiming the new combined firm will be more equipped to compete with the likes of Huawei and Ericsson in the networking equipment market.

A merger between the two firms has long been mooted, with reports earlier this week suggesting that Nokia was ready to offload its HERE maps business to fund the acquisition and create a new European networking giant.

The new company will be known as ‘Nokia Corporation’, with Alcatel-Lucent shareholders owning a third of the company. Current Nokia chairman Risto Siilasmaa will retain his position, as will CEO Rajeev Suri.

Nokia Alcatel-Lucent

Rajeev Suri Nokia CEOBoth Suri and Michael Combes, Alcatel Lucent CEO, say the complementary strengths and geographies of their respective firms will allow Nokia to create new products to help telecom firms and large enterprises cope with fixed, mobile, cloud and IoT growth.

“Our innovation capability will be extraordinary, bringing together the R&D engine of Nokia with that of Alcatel-Lucent and its iconic Bell Labs. We will continue to combine this strength with the highly efficient, lean operations needed to compete on a global scale,” said Suri. “We have hugely complementary technologies and the comprehensive portfolio necessary to enable the internet of things and transition to the cloud.  We will have a strong presence in every part of the world, including leading positions in the United States and China.

“Together, we expect to have the scale to lead in every area in which we choose to compete, drive profitable growth, meet the needs of global customers, develop new technologies, build on our successful intellectual property licensing, and create value for our shareholders.”

“A combination of Nokia and Alcatel-Lucent will offer a unique opportunity to create a European champion and global leader in ultra-broadband, IP networking and cloud applications,” added Combes. “This transaction comes at the right time to strengthen the European technology industry. We believe our customers will benefit from our improved innovation capability and incomparable R&D engine under the Bell Labs brand.

Going forward

Nokia Espoo HQThe transaction is subject to approval from Nokia shareholders and regulatory approval and could be completed by the first half of 2016. The acquisition could attract the attention of the French government, which might be keen to protect jobs and influence in the communications industry.

Nokia says the new firm will be based in Espoo, Finland but has promised a “strong presence” in France and made no specific mention of job cuts – only that it expects to save €900 million a year through streamlining.

If a deal is completed, it would mark the latest stage of consolidation in the telecommunications equipment market. Alcatel merged with Lucent, a spin off from AT&T, in 2006, while Nokia bought out its partner Siemens in the Nokia Siemens Networks (NSN) joint venture in 2013.

The HERE maps, advanced technology and networking arms were the three businesses Nokia was left with following Microsoft’s £4.6 billion acquisition of the Espoo-based firm’s devices and services unit last year, but it appears as though the company is ready to put all its eggs in one network basket.

“When you consider the strengths and weaknesses of Alcatel-Lucent and Nokia and their product portfolios, a merger of the two businesses seems logical. Nokia is a mobile-only equipment vendor, while Alcatel-Lucent’s strengths are in the fixed network business (especially core network and IP routing),” said Mark Newman, Chief Research Officer, Ovum.

“It has long-struggled in the wireless business, and its attempts to become a leading player in LTE have failed. Alcatel-Lucent has also been active in SDN/NFV with CloudBand and Nuage and aggressive with small cells – areas where Nokia is perceived to be lagging behind competition.

“But there are also risks. A full merger would plunge both businesses back into a period of introspection and restructuring. It would create significant duplication in areas such as mobile broadband and small cells. Maintaining two different product portfolios and servicing existing customers would counteract the benefits of increased scale.”

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