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Nokia green-lights Alcatel-Lucent acquisition

Finnish telecoms vendor agrees to purchase French firm for $16.6bn in stock

Nokia said that the merger is expected to be finalised by the end of 2016
Nokia said that the merger is expected to be finalised by the end of 2016

Finnish networking company Nokia has confirmed rumours that it intends to buy its French rival, Alcatel-Lucent, which it is valuing at $16.6bn.

The transaction will be paid for entirely in shares, Nokia said. Alcatel-Lucent shareholders will get 0.55 shares in the new, combined company for each of their shares in Alcatel-Lucent. According to Reuters, this will mean that the new entity will be 33.5% owned by Alcatel-Lucent, with the remaining being in Nokia's hands.

Alcatel-Lucent has been struggling since it was created through a merger in 2006. Up until last year, the company had failed to turn a profit, and has only managed to return to the black due to CEO Michael Combes' so-called ‘Shift Plan' - a cost-cutting scheme designed to focus the company on IP networking and high-end telecoms equipment.

This fact has caused some to question whether Alcatel-Lucent is being valued too highly at $16.6bn. However, the company still owns more than €21bn in assets, meaning that the price should be more palatable for Nokia's shareholders. What's more, Alcatel-Lucent already has a large customer base consisting of large telecoms operators around the world - Nokia will hope to capitalise on those relationships.

"The combined company will be uniquely positioned to create the foundation of seamless connectivity for people and things wherever they are," Nokia said in a statement

If the deal is approved by regulators and the French government, the combined company would be the number-two global telecoms vendor, behind first-placed Ericsson, and ahead of the current number-two, Huawei. According to Reuters, Ericsson currently commands around 40% of the global wireless market, while Huawei has 20%. Combined, Nokia and Alcatel-Lucent would gain 35% of the market.

The acquisition will also help both companies in their R&D efforts - currently Ericsson and Huawei are seen as telecoms technology leaders. A combined Nokia and Alcatel-Lucent should help the two companies to play catch-up.

"This foundation is essential for enabling the next wave of technological change, including the Internet of Things and transition to the cloud," Nokia said.

"With more than 40,000 R&D employees and spend of €4.7 billion in R&D in 2014, the combined company will be in a position to accelerate development of future technologies including 5G, IP and software-defined networking, cloud, analytics as well as sensors and imaging.

Earlier concerns that the French government may be opposed to the deal seem to have been swept away - officials have responded positively to the news, saying that they welcome a France-Finland technology tie-up.

Nokia said that the merger is expected to be finalised by the end of 2016.