Nokia Makes $16.6B Play for Alcatel-Lucent

The day after confirming that M&A talks were underway, Nokia said Wednesday that it has struck a deal to acquire Alcatel-Lucent in a stock deal valued at €15.6 billion (US$16.6 billion), an agreement that should put the companied company on squarer competitive footing against Ericsson and Chinese telecom giant Huawei.

The boards of both sides have approved the terms of the proposed deal, which they expect to close by the first half of 2016. Under those terms, Alcatel-Lucent shareholders will own 33.5% of the fully diluted share capital of the combined company, with Nokia shareholders owning 66.5%.

The combined company will be called Nokia Corporation and be headquartered in Finland, while maintaining a large presence in France. Risto Siilasmaa is planned to serve as chairman, and Rajeev Suri as CEO.

The aim is to generate a complementary portfolio of fixed and mobile broadband gear, IP routing and core networks products and cloud applications and services, and to target a wide geography with “particular strength” in the U.S., China, Europe and Asia-Pacific.

They expect the combined company, which will  have about 114,000 employees, to generate operating cost synergies of about €900 million (US$953 million) annually by 2019. They anticipate combined net sales of €25.9 billion (US$27.4 billion)

The companies talked up the innovation-facing components of the deal, claiming they’ll be able to take combined advantage of Alcatel-Lucent's Bell Labs and Nokia's FutureWorks, as well as Nokia Technologies, which will stay as a separate entity focused on licensing and the incubation of new technologies. 

“We have hugely complementary technologies and the comprehensive portfolio necessary to enable the internet of things and transition to the cloud,” Suri said, in a statement. “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.

“The global scale and footprint of the new company will reinforce its presence in the United States and China,” added Alcatel-Lucent CEO Michel Combes.

Analysts said there are pros and cons to the proposed marriage.

“When you consider the strengths and weaknesses of Alcatel-Lucent and Nokia and their product portfolios, a merger of the two businesses seems logical,” Ovum said in a statement issued Tuesday about the prospect of a Nokia/Alcatel-Lucent combo. “Nokia is a mobile-only equipment vendor, while Alcatel-Lucent’s strengths are in the fixed network business (especially core network and IP routing). 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 Ovum said a merger is also rife with risks, as it could “plunge both businesses back into a period of introspection and restructuring” and create “significant duplication in areas such as mobile broadband and small cells.”

On the mobile end, the new company will have a global market share of 35%, behind market-leader Ericsson (40%), but ahead of Huawei's 20%, Reuters said, citing Bernstein Research. Ovum estimates that Nokia and Alcatel Lucent’s combined share of total LTE contracts was at 26% at the end of 2014, behind Huawei (36%) and Ericsson (33%).

J.P. Morgan served as financial advisor to Nokia and delivered a fairness opinion to the Board of Directors of Nokia in connection with the transaction. Skadden, Arps, Slate, Meagher & Flom LLP and Roschier, Attorneys Ltd served as legal advisors. Zaoui & Co is acting as lead M&A advisor to Alcatel-Lucent and delivered a fairness opinion to the Board of Directors of Alcatel-Lucent in connection with the transaction. Sullivan & Cromwell LLP served as legal advisor.