Nokia to Buy Alcatel-Lucent ...
>> Nokia Agrees to Buy Alcatel-Lucent
Sam Schechner
The wall Street Journal (PARIS)
April 15, 2015
wsj.com
Nokia Corp. has sealed an agreement to buy rival telecommunications-equipment firm Alcatel-Lucent in an all-stock deal that values the French company at €15.6 billion ($16.6 billion), the companies said Wednesday.
The deal caps what the companies said were years of talks, beginning in the fall of 2013, based on the logic that Europe’s two smaller network-gear makers would eventually need to team up to have the resources to compete globally against larger rivals including Sweden’s Ericsson -0.46 AB and China’s Huawei Technologies Co.
“We had a wireless-network business that was too small to compete with our main competitors, and a balance sheet that was a bit less solid too,” said Michel Combes,Alcatel-Lucent 13.33 ’s chief executive at a news conference in Paris. “The merger with Nokia was clear, it was evident.”
The deal brings together two national industrial champions, each of which had in recent years been laid low by corporate missteps and intense competition. It will return Nokia to a position as a global leader, giving it access to lucrative Alcatel-Lucent client relationships in the U.S. and a suite of Internet-routing technologies to complement its wireless gear.
“Customer consolidation has been ongoing for a number of years, and it has created fewer, larger players with broader global reach,” Mr. Suri told analysts during a presentation on Wednesday. “The proposed combined company will bring together the complementary capabilities of both companies with a broader product portfolio.”
Under the agreement, which was approved by both companies’ boards, Nokia will issue 0.55 shares of stock for every outstanding Alcatel-Lucent share, giving Alcatel-Lucent shareholders 33.5% of the merged company when the transaction is complete. The companies say they expect to close the deal in the first half of 2016.
After completion, Nokia will remain based in Finland under existing Chairman Risto Siilasmaa and Chief Executive Rajeev Suri, the firms said. Nokia said it would maintain strong research facilities in France and nominate a vice chairman from Alcatel-Lucent.
The structure of the deal—putting Nokia clearly in charge—was an intentional response to the difficult experiences the companies had both suffered in their own mergers a decade ago. France’s Alcatel feuded with the U.S.’s Lucent technologies, with an American CEO and a French chairman battling for control, giving an opening for competitors to seize market share.
“We learned from our mistakes,” said Philippe Camus, chairman of Alcatel-Lucent, who added that the current deal structure was outlined by the two companies in September 2014, after considering other possible structures.
Asset disposals are likely to follow as part of the deal. Nokia said that it will conduct a strategic review of HERE, its mapping business, which could lead to its eventual sale, Alcatel’s submarine-cable business will likely also be split off, perhaps in an public offering, Mr. Combes said. Alcatel had already planned an IPO of a minority stake of the business, which French official have described as strategic.
The companies said the deal offers a premium of 28% over the average Alcatel share price over the past three months, yielding a valuation higher than some analysts had anticipated on Tuesday. But Nokia said it sees the deal as being accretive to its shareholders in part because the combined company will address a market that is 50% larger than its current wireless portfolio.
Cost cuts will be a factor in the deal. The firms are promising to cut €900 million of yearly operating expenses by 2019 by reducing duplicated products, overlapping real estate and other overhead costs. The firms aim to slash another €200 million in interest expenses.
For France, the deal means the end of an independent life for an industrial icon. But the country was able to wrestle employment commitments from the firm, following a meeting between Mr. Suri and French President François Hollande on Tuesday.
Nokia said Wednesday that it intends to maintain head count in France at the levels Alcatel agreed to in a round of job cuts it started 18 months ago, and would hire several hundred research staffers. The Finnish company also said it intends to create a €100 million investment fund for startups in France.
Market Talk
Nokia/Alcatel-Lucent Intergration Challenging, Says Deutsche: A full tie-up between Nokia and Alcatel-Lucent would be good news for Alcatel shareholders but would present several risks for Nokia, says Deutsche Bank. Says integration could be challenging both from a product and culture perspective for Nokia. “This is a big price to pay for the trophy assets,” says Deutsche Bank. Says Ericsson could be the indirect beneficiary of this possible consolidation. Has a hold rating on Nokia, but a buy rating on Ericsson. (nick.cawley@wsj.com)
Nokia Share Price Will Be Hit, Says Inderes: Investors will react negatively to Nokia’s purchase of Alcatel-Lucent, says Inderes analyst Mikael Rautanen. Notes that the deal assigns very high valuation to Alcatel-Lucent relative to its profitability. The valuation can be justified, “if Alcatel’s turnaround has progressed sufficiently and all the planned synergy benefits from this deal come true,” Mr. Rautanen says. Notes that the deal adds risk to Nokia as an investment case. “Just when Nokia seemed to be entering a stable phase and starting to generate solid cash flows, it plunges into a new restructuring period. Integration of the two companies won’t be easy,” Mr. Rautanen says. ###
- Eric L. - |
