Nokia Confirms Advanced Takeover Talks With Alcatel-Lucent

They’ve been the subject of takeover speculation for years, but telecom equipment makers Nokia and Alcatel-Lucent finally confirmed on Tuesday April 14th that they were in deal talks.

“Nokia and Alcatel-Lucent confirm that they are in advanced discussions with respect to a potential full combination, which would take the form of a public exchange offer by Nokia for Alcatel-Lucent,” Nokia said in an official statement.

It added there was still a chance the talks would fall apart. The deal would be Nokia’s biggest-ever acquisition, valuing Alcatel-Lucent at around $13 billion.

Nokia sold its mobile handset division to Microsoft last year for $7.2 billion, leaving the Finnish business primarily focused on network equipment manufacturing, mapping-and-location services and patent licensing.

It still has a market capitalization of $30.6 billion, while Alcatel-Lucent has a market cap of $11.6 billion based on Monday’s closing share price. Following Tuesday’s announcement Alcatel’s shares surged by 14% while Nokia’s dropped 6%.

Nokia has a workforce of 62,000 while Alcatel’s stands at 52,000.

Nokia could fund the acquisition by selling its HERE mapping business, worth about 2 billion euros according to Bloomberg, which also says the division has seen interest from other companies and private equity suitors.

It’s unclear at this point if Nokia intends to buy all of Alcatel-Lucent or just its wireless division, creating a bigger company to challenge larger peers like Sweden’s Ericsson and China’s fast-growing Huawei.

“They could come up with some cost cuts,” Clairinvest fund manager Ion-Marc Valahu told Reuters, “but just because you combine one weak player with another weak player does not necessarily mean that you will end up with a stronger player.”

Valahu’s skepticism is reminiscent of a similar comment made back in 2011, days before Nokia announced an initial wide-ranging partnership with Microsoft. Google’s Vic Gundotra posted a tweet saying “Two turkeys do not make an eagle.”

Three years later came the full acquisition, which was widely seen as an attempt to keep up with Apple and Google’s smartphone businesses.

That acquisition certainly helped Microsoft ship more Windows Phones, but not to the extent that the platform ever posed a significant challenge to Google’s Android or Apple’s iOS.

Nokia will be looking for a greater impact by picking up Alcatel-Lucent in the world of network infrastructure, gaining a bigger foothold in the United States where Alcatel-Lucent is a major supplier to carriers AT&T and Verizon.


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