Nokia aims to be­come net­works gi­ant

The China Post - - WORLD BUSINESS - BY MATTI HUUHTANEN

Nokia will buy ail­ing French tele­com com­pany Al­ca­tel-Lu­cent for around 15.6 bil­lion eu­ros (US$16.5 bil­lion) through a public ex­change of shares in France and the United States, in a bid to be­come a lead­ing global net­works op­er­a­tor.

Though Al­ca­tel-Lu­cent has been rack­ing up bil­lions of eu­ros of losses since its cre­ation in 2006, Nokia seems to be­lieve it can cut costs and hopes the deal will give it scale in the mar­ket of pro­vid­ing the net­works that mo­bile phones use.

The Finnish com­pany said Wed­nes­day that the all- share trans­ac­tion will be on the ba­sis of 0.55 of a new Nokia share for ev­ery share of Al­ca­tel-Lu­cent. Ac­cord­ing to the deal, Al­ca­tel-Lu­cent share­hold­ers would own 33.5 per­cent of the fully di­luted share cap­i­tal of the com­bined com­pany, with Nokia share­hold­ers own­ing 66.5 per­cent.

Nokia stock closed down 1.5 per­cent at 7.38 eu­ros on the Helsinki Stock Ex­change while Al­ca­tel-Lu­cent plunged more than 15 per­cent in Paris.

Mikko Er­vasti, an­a­lyst at Evli Bank in Helsinki, said the deal puts Nokia among the global mar­ket lead­ers in net­works.

“Nokia is clearly fo­cus­ing on its net­works op­er­a­tions and this ac­qui­si­tion makes it a big enough player to clearly chal­lenge Eric­s­son, per­haps even in sev­eral sec­tors,” he said.

The ac­qui­si­tion has been ap­proved by both boards and is ex­pected to close in 2016 sub­ject to reg­u­la­tory and other ap­provals, in­clud­ing from share­hold­ers.

The com­bined com­pany, known as Nokia Corp., will be based in Fin­land with “a strong pres­ence in France,” Nokia said.

Nokia CEO Ra­jeev Suri was up­beat on the takeover, say­ing he firmly be­lieves it is “the right deal, with the right logic, at the right time.”

But an­a­lysts warned that a cross­over in op­er­a­tions would likely re­sult in lay­offs and cuts.

Er­vasti de­scribed Al­ca­tel-Lu­cent as a “sprawl­ing” con­cern, and said Nokia might have to shed some op­er­a­tions.

“I think Nokia was in­ter­ested in cer­tain sec­tors of the com­pany and had to bend over and make an of­fer for the whole lot,” he said.

Nokia said it aims to make sav­ings of 900 mil­lion eu­ros in “op­er­at­ing cost syn­er­gies” by 2019 and some 200 mil­lion eu­ros re­duc­tions in in­ter­est ex­penses per year by 2017.

Al­ca­tel- Lu­cent CEO Michel Combes ad­mit­ted a “pang of sad­ness in the heart” at the demise of the Al­ca­tel brand but de­fended the deal as fo­cus­ing on “devel­op­ment and growth.”

“We had dif­fi­cult pe­ri­ods, but now we are one of the build­ing bricks for what will be­come a global tech­nol­ogy gi­ant,” he said on France’s Europe-1 ra­dio. “Nokia is be­com­ing to­day the leader of telecom­mu­ni­ca­tions net­works thanks to Al­ca­tel-Lu­cent.”

Combes also said that they are com­mit­ted to keep­ing job lev­els the same in France and that the project would in­clude 500 more re­search and devel­op­ment jobs in France.

Both com­pa­nies’ chief ex­ec­u­tives met with French Pres­i­dent Fran­cois Hol­lande briefly on Tues­day af­ter­noon, and the French gov­ern­ment said it would sup­port the deal.

Nokia, which be­gan as a maker of pa­per and gum boots in 1865, trans­formed into a home elec­tron­ics firm be­fore be­com­ing an in­no­va­tor in the wire­less in­dus­try and the world’s top cell­phone maker. But it met its match when Ap­ple launched the iPhone and also was un­able to com­pete against Google Inc.’s An­droid op­er­at­ing sys­tem and cheaper hand­sets from Asia.

It has made a turn­around since the 5.4 bil­lion-euro sale of the loss­mak­ing hand­set busi­ness to Mi­crosoft a year ago, with three re­main­ing sec­tors: net­works, HERE map­ping ser­vices and tech­nolo­gies and patents. Nokia said Wed­nes­day it is look­ing into the po­ten­tial di­vest­ment of its HERE busi­ness, but gave no de­tails.

Al­ca­tel-Lu­cent, which has un­der­gone re­peated rounds of re­struc­tur­ing since the 2006 merger of France’s Al­ca­tel and U.S.-based Lu­cent Tech­nolo­gies, is lay­ing off more than 10,000 work­ers and last year made a net loss of 118 mil­lion eu­ros.

An­a­lysts said the deal could be the first of many in the sec­tor.

“Half of telecom­mu­ni­ca­tions com­pa­nies are plan­ning ac­qui­si­tions in the next 12 months, so we can ex­pect fur­ther ac­tiv­ity in the sec­tor,” said Pip McCrostie, Global Vice Chair of Trans­ac­tion Ad­vi­sory Ser­vices at con­sult­ing firm EY. “The ap­petite to ac­quire is ex­cep­tion­ally high in the closely aligned tech­nol­ogy sec­tor, with al­most 70 per­cent of com­pa­nies plan­ning deals.”

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