Stockholm - Nokia Oyj agreed to buy Alcatel-Lucent SA in an all-stock deal valued at 15.6 billion euros ($16.6 billion) to create the world’s largest supplier of equipment that powers mobile-phone networks.
Alcatel investors will receive 0.55 Nokia shares for each stock they own, the companies said on Wednesday. The price is equivalent to about 4.12 euros based on Nokia’s closing price yesterday, or 8 percent less than Alcatel’s last close in Paris. Alcatel shares soared yesterday as the companies said they are in talks.
Nokia’s biggest-ever acquisition would result in a company that surpasses Ericsson AB and Huawei Technologies in wireless-infrastructure revenue, according to researcher IDC. The deal would allow Chief Executive Officer Rajeev Suri to bolster Nokia’s position in China, a market of 1.3 billion mobile subscribers, and take on contracts with the two biggest US carriers - Verizon Communications and AT&T.
Nokia, based in Espoo, Finland, also said it started a strategic review for its HERE maps business. Bids are expected soon for the unit, which is valued by Nokia at about 2 billion euros and has attracted interest from companies and private- equity firms, people familiar with the matter have said.
Shares of Paris-based Alcatel rose 16 percent to 4.48 euros on Tuesday after the company confirmed it’s in advanced talks to merge with Nokia. Nokia closed 3.6 percent lower at 7.49 euros on the Helsinki exchange.
The takeover would also let Nokia add products used to transmit landline and Internet traffic, giving it a more complete offering to sell to carriers as the amount of data travelling on networks increases with the popularity of Netflix and other video and music services.
Record deal
The combined company will be called Nokia and led by Suri and chaired by current Nokia Chairman Risto Siilasmaa. Alcatel shareholders will own 33.5 percent of the company and Nokia shareholders 66.5 percent.
If completed, the deal would be the biggest in the industry since at least 1999, when Lucent Technologies bought Ascend Communications for about $21 billion, according to data compiled by Bloomberg.
It would also be comparable to the transaction that created today’s Alcatel: the French company’s purchase of Lucent in 2006 for $13.4 billion, according to Bloomberg data. The deal would top Nokia’s record acquisition of map provider Navteq Corp. for about $8 billion in 2008, and would be the biggest-ever by a Finnish company.
Nokia and Alcatel have more than 110 000 workers combined. Suri, who took over as head of Nokia’s networks unit in 2009 and became group CEO last year, has revived the equipment business by cutting more than 25 000 jobs over three years and focusing on more lucrative contracts.
French jobs
While France’s government doesn’t own a significant stake in Alcatel - one of its investment arms holds 3.25 percent according to data compiled by Bloomberg - it is concerned about what will happen to the approximately 7 000 people who work for the company in the country. Suri is in Paris this week to negotiate those details and his itinerary included a meeting with President Francois Hollande.
Economy Minister Emmanuel Macron said on Tuesday the government will closely monitor any consequences the deal may have on jobs, and will seek to make sure the transaction helps build a viable European champion.
The companies expect to complete the deal in the first half of 2016. They seek savings of 900 million euros a year, to be achieved in 2019. They also expect about 200 million euros of reductions in interest expenses a year starting in 2017. The companies’ combined sales last year were about 26 billion euros.
‘Almost bankrupt’
Alcatel lost billions of dollars in the years following its 2006 merger with Lucent as it struggled to revive sales.
“Two years ago, Alcatel-Lucent was almost bankrupt with only some intellectual property rights buying it some bank financing,” Macron said.
Still, Alcatel shares have more than tripled since Michel Combes became CEO in 2013 as he reduced costs and landed contracts from new customers. Combes has less than eight months left of his three-year turnaround plan, aimed at making Alcatel profitable and helping it generate cash.
Sweden’s Ericsson is now the largest maker of wireless- network gear - which includes equipment such as base stations and antennas that transmit mobile-phone calls and data - with a market share of 25.7 percent in 2014, according to IDC. Huawei had 23.2 percent, Nokia 15.8 percent and Alcatel 11.4 percent share.
Phone giant
Founded as a wood-pulp mill in 1865, Nokia’s transformations have included switches from rubber boots and toilet paper to cables, televisions, computers and mobile phones. It was the world’s largest handset maker - with a market value reaching 300 billion euros - before Apple and Samsung Electronics claimed its leadership.
Nokia shares have more than doubled since the company agreed to sell its mobile-phone business to Microsoft in 2013 for about $7.5 billion. That deal left Nokia with net cash of about 5 billion euros at the end of last year.
JPMorgan Chase & Company is advising Nokia, and Skadden Arps Slate Meagher & Flom LLP is serving as its legal adviser. Financial advisory boutique Zaoui & Company is assisting Alcatel, as is law firm Sullivan & Cromwell LLP.
* With assistance from Manuel Baigorri, Matthew Campbell and Aaron Kirchfeld in London, Naomi Kresge in Berlin, Francois de Beaupuy and Helene Fouquet in Paris and Alex Sherman and Jeffrey McCracken in New York
Bloomberg