By Sam Schechner
Finnish telecommunications-equipment maker Nokia Corp. is in
advanced talks to buy French rival Alcatel-Lucent SA, the companies
said Tuesday, a deal that would create a new global networking
behemoth to rival Sweden's Ericsson and China's Huawei
Technologies.
The deal currently under consideration is a "full combination"
that would entail Nokia making a public offer for Alcatel-Lucent
stock, the companies said. The deal could still fall apart, they
added.
It isn't clear if the parties have agreed on a valuation.
Alcatel-Lucent's market capitalization stands at roughly EUR11
billion ($11.63 billion), while Nokia's market capitalization is
about EUR28 billion.
In response to the statement, Alcatel-Lucent's shares rose 13%
to EUR4.38 in morning trading in Paris, while Nokia shares fell
7.3% to EUR7.205.
A Nokia-Alcatel merger deal would cap years of speculation about
a possible tie-up between the two firms, and reshape the
telecommunications-equipment business by creating a company with a
combined 2014 revenue of EUR25.9 billion and more than 100,000
employees in businesses spanning wireless communications and
Internet routing.
Market leader Ericsson reported revenue of EUR25.1 billion in
2014, while Huawei's telephone-carrier equipment business had
revenue of about EUR23.6 billion, at average exchange rates for the
year.
Cisco, which competes with Alcatel in Internet routing, amid its
broader enterprise and consumer businesses, had revenue of $47.1
billion for the year ending July 26.
A purchase of Alcatel-Lucent by Nokia could face a tricky
political dance in France. French officials have promoted the idea
of creating pan-European giants to compete globally, in the model
of Franco-German aerospace firm Airbus. But Alcatel-Lucent is also
a major employer and symbolic of French industry.
One French government official said that any deal involving
Alcatel-Lucent would likely have to be structured to keep a
significant French influence in the new company for the deal to
pass muster in Paris.
A spokeswoman for Economy Minister Emmanuel Macron declined to
comment.
The timing of any deal remains unclear, but the two companies
will face shareholders in the next few weeks. Nokia holds its
annual shareholder meeting on May 5, while Alcatel-Lucent is
scheduled to hold its meeting on May 26.
The possible French-Finnish tie-up would join two companies that
are only recently emerging from a troubled wave of consolidation
nearly a decade ago. At the time, the companies were suffering from
a price war with Chinese firms. Since then, Huawei has roughly
tripled the revenue of its business selling gear to
telecommunications firms.
Nokia's telecommunications-equipment unit struggled for years in
what was an awkward joint venture with Siemens AG, forcing a brutal
round of staff cuts and restructuring to return to profit. Nokia
bought Siemens out of the newly profitable company in 2013, after
agreeing to sell its cellphone handset business to Microsoft
Corp.
Alcatel-Lucent meantime has lurched through repeated
restructuring plans and asset sales as it burned cash. Created in
2006 in the merger of France's Alcatel and the U.S.'s Lucent
Technologies, a spinout from the old AT&T, it is only in 2015
finally on track to post positive free cash flow.
For Nokia, a deal would be a way to gain market share in the
competitive wireless business against Ericsson in the profitable
U.S. market, where Alcatel-Lucent has historical roots and
long-standing relationships with Verizon Communications Inc. and
AT&T Inc. It would also add Alcatel-Lucent's fast-growing
Internet routing business, which is one of the firm's profit
engines that analysts are counting on for future growth. Nokia's
equipment business has since its restructuring focused solely on
wireless networking.
Alcatel-Lucent's wireless business has been a sore spot. Its
market share has slowly dwindled in part from lost contracts in
Europe. Big spending from carriers in the U.S. and China on new
high-speed LTE networks helped boost revenue in recent years, but
with some of those build-outs rolling down, revenue in the division
was down 9% on-year in the fourth quarter.
Nokia had roughly 17% market share in wireless networks globally
in 2014, behind 30% for Ericsson and 20% for Huawei, according to
Infonetics, a market research firm. Alcatel had a 10% share, and
was surpassed last year by Chinese equipment maker ZTE Corp, which
now has 11% globally, Infonetics said.
Alcatel-Lucent Chief Executive Michel Combes has since taking
over in 2013 been slimming down and refocusing the company under
what he described as the "Shift" plan. Since he took over,
Alcatel-Lucent has since sold its office-phone business, its U.S.
government-equipment business and other assets, while cutting
staffing.
Alcatel-Lucent has also been planning a public offering of a
minority stake in its submarine-networking division, which is a
leader in laying telecommunications cables beneath oceans. It
remains unclear if that IPO, slated for the second half of the
year, will continue if a combination of Nokia and Alcatel is
agreed. French officials have said the unit is a strategic asset
for the country's intelligence services.
Ericsson declined to comment on its competitors' activities,
adding that it was focused on its own strategy.
Juhana Rossi contributed to this article.
Write to Sam Schechner at sam.schechner@wsj.com
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