Nokia just bought Alcatel-Lucent for $16.6 billion.

Under the all-share deal, Alcatel-Lucent shareholders will own 33.5% of the new combined firm, and Nokia shareholders 66.5%.

Nokia will soon be the largest maker of telecom equipment in the world ahead of Ericsson and Huawei. It just acquired French telecom equipment maker Alcatel-Lucent for 15.6 billion euros ($16.6 billion), or more than double the $7 billion Microsoft paid for its Windows Phone handset arm. The Finnish company also acquired Alcatel-Lucent’s famous Bell Laboratories (established by Alexander Graham Bell in 1880) along with its numerous patents. With three major labs altogether, Nokia said “the combined company will be in a position to accelerate development of future technologies including 5G… as well as sensors and imaging.” The merged businesses will run under the Nokia banner, but Bell Labs will keep the Alcatel-Lucent name.

Both firms said their boards had agreed the takeover and they expected it to go through in the first half of next year. The merger will form a European telecoms equipment group worth more than €40bn (£29bn). Nokia’s chief executive, Rajeev Suri, said the firms’ complementary technologies would give them “the scale to lead in every area in which we choose to compete”.

“I firmly believe that this is the right deal, with the right logic, at the right time,” he added.

The two firms are currently among the weakest players in the telecoms equipment industry. However, the combined firm will have a market share of 35%, making it second only to Swedish rival Ericsson, which has 40%, according to Bernstein Research. The firms expect the merger to cut operating costs by €900m by 2019, but Nokia said it would not cut jobs beyond what Alcatel had already planned.

“No job cuts” in France was the condition under which the French government said on Tuesday that it would back the deal.

Alcatel-Lucent’s shares fell 10% in early trading, with traders attributing the fall to shareholders’ disappointment that the deal did not have a cash element. However, Nokia’s shares rose almost 5%, despite some analysts saying that the deal could take a long time to pay off.

“Nokia’s risk profile will increase considerably,” said analyst Mikael Rautanen from Inderes Equity Research.

“The risk is that the merger will become a long and rocky road and investors lose their patience following through the integration programme that will take years,”

But Jukka Oksaharju from Nordnet brokerage said Nokia had secured a good price.

“We know that there are risks related to France and the cost cuts, but I believe that Nokia has calculated a margin of safety to the deal price.”

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Sources:

BBC News

EnGadget UK

 

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