Nokia to buy rival Alcatel-Lucent for €15.6bn

Company will operate under the Nokia Corporation brand with a combined turnover of €25.9 billion and is looking to make €900 million savings in operating costs by 2019

Nokia to buy rival Alcatel-Lucent for €15.6bn

Nokia is to acquire rival mobile infrastructure provider Alcatel-Lucent for €15.6bn in an all-share deal, it announced today (15 April 2015). The move comes just one day after the two companies confirmed they were in advanced discussions.

The two companies have entered into a memorandum of understanding under which Nokia will make an offer for all of the equity securities issued by Alcatel-Lucent, through a public exchange offer in France and in the United States, on the basis of 0.55 of a new Nokia share for every Alcatel-Lucent share.

Alcatel-Lucent shareholders would own 33.5% of the fully diluted share capital of the combined company, and Nokia shareholders would own 66.5%, assuming full acceptance of the public exchange offer. Nokia’s Risto Siilasmaa is planned to serve as chairman, and Rajeev Suri as chief executive officer.

The deal will see the Alcatel-Lucent brand disappear with the combined company operating under the Nokia Corporation name. It will be headquartered in Finland with strategic business locations and major R&D centres in France, and many other countries including Germany, the United States and China. The business intends to retain the Bell Labs (part of Alcatel-Lucent) brand to host its networks-focused innovation activities.

The companies’ combined balance sheet would give Nokia the clout to take on industry leaders Ericsson and Huawei, as it would have had net sales of €25.9 billion in 2014, a non-IFRS operating profit of €2.3 billion, a reported operating profit of €0.3 billion, R&D investments of approximately €4.7 billion, and a strong balance sheet with combined net cash at 31 December 2014 of €7.4 billion.

Assuming the closing of the transaction in the first half of 2016, Nokia plans to target approximately €900 million of operating cost with synergies to be achieved on a full year basis in 2019. The combined company would also target approximately €200 million of reductions in interest expenses to be achieved on a full year basis in 2017.

Nokia said the operating cost synergies are ‘expected to create a long-term structural cost advantage, coming from a wide-range of areas’, including:

• Organisational streamlining, rationalisation of overlapping products and services, central functions, and regional and sales organisations
• Reduction of various overhead costs in real estate, manufacturing and supply-chain, information technology, and overall general and administrative expenses, including redundant public company costs
• Procurement given expanded purchasing requirements of the combined company.

Job losses will almost certainly be on the cards here. However, Nokia may have headed off any difficulties with the French government, which is very protective of its technology sector and French jobs in general. It intends to retain a ‘presence in France that spans leading innovation activities including a 5G/small cell R&D Centre of Excellence; a Cyber-Security lab similar to its existing facility in Berlin designed to support European collaboration on the topic’.

It also said it intends to maintain employment in France that is consistent with Alcatel-Lucent’s end-2015 Shift Plan commitments, with a particular focus on the key sites of Villarceaux (Essonne) and Lannion (Côtes d’Armor). In addition, the company expects to expand R&D employment with the addition of several hundred new positions targeting recent graduates with skills in future-oriented technologies, including 5G.

R&D will centre on Alcatel-Lucent’s Bell Labs and Nokia’s FutureWorks, while Nokia Technologies will stay as a separate entity with a clear focus on licensing and the incubation of new technologies. This will mean the combined company will have more than 40,000 R&D employees and a spend of €4.7 billion in R&D based on 2014 figures.

Alcatel-Lucent and Nokia have ‘highly complementary portfolios and geographies’, with particular strength in the United States, China, Europe and Asia-Pacific. They will also bring together the best of fixed and mobile broadband, IP routing, core networks, cloud applications and services. This combination is expected to create access to an expanded addressable market with improved long term growth opportunities.

Rajeev Suri, president and chief executive officer of Nokia, said: “Together, Alcatel-Lucent and Nokia intend to lead in next-generation network technology and services, with the scope to create seamless connectivity for people and things wherever they are.”

Michel Combes, chief executive officer of Alcatel-Lucent, added: “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. I am proud that the joined forces of Nokia and Alcatel-Lucent are ready to accelerate our strategic vision, giving us the financial strength and critical scale needed to achieve our transformation and invest in and develop the next generation of network technology.”

Each company’s Board of Directors has approved the terms of the proposed transaction, which is expected to close in the first half of 2016. The proposed transaction is subject to approval by Nokia’s shareholders, completion of relevant works council consultations, receipt of regulatory approvals and other customary conditions.

Nokia’s statement today also confirmed it is seeking a buyer for its HERE mapping business, which will give it more cash to finance the Alcatel-Lucent deal.

The company employs approximately 52,600 employees as of end 2014, including 20,000 R&D employees. Its products and services are distributed all over the world (North America: 44%, Asia Pacific: 20%, Europe: 23%, Rest of World: 13%).

It is organised in two main operating segments:
• Core Networking segment including three business divisions: IP Routing, IP Transport and IP Platforms
• Access segment including four business divisions: Wireless, Fixed Access, Licensing and Managed Services.

See also: Analysts give cautious welcome to Nokia and Alcatel-Lucent tie up

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