Nokia has confirmed that they will buy telecoms equipment company Alcatel-Lucent for €15.6 billion ($16.5 billion). This will be paid in shares in the resulting company which will be 33.5% owned by Alcatel-Lucent shareholders and 66.5% owned by Nokia shareholders. This represents a 34% premium over Alcatel-Lucent’s average share price for the last three months.
The merged company will be called Nokia Corporation and will be headquartered in Finland but will maintain a strong presence in France. The company will have around 114,000 employees and combined sales of €26,000 billion euros. In addition to acquiring Alcatel-Lucent, Nokia has announced that it is looking to sell Here, its digital mapping division to focus more fully on their telecoms equipment business.
The two companies have very complementary portfolios and will bring together the best of fixed and mobile broadband, IP routing, core networks and cloud applications and services. The merger is expected to expand the total addressable market by 50% and increase potential market growth to 3.5% between 2014 and 2019. According to Bernstein Research, the new company will have a 35% share of the mobile equipment market, just behind Ericsson with 40% and ahead of China’s Huawei with only 20%.
The mobile equipment industry has suffered poor growth recently due to pressure from low-cost Chinese companies such as Huawei and ZTE. This deal is set to transform the competitive dynamics of the industry and is expected to lead a wave of new mergers and acquisitions and reinvigorate the entire market sector.
With Nokia strengthening in the telecoms equipment space and looking to focus more fully on this area, other companies like Ericsson, Huawei and Juniper Networks will no doubt be looking for their own potential acquisitions. Ericsson in particular could look to buy Juniper Networks which would allow it to offer IP routers. Alternatively it could potentially look at making an offer for its partner Ciena who are focussed on optical-transport systems. Acquisitions such as these would allow Ericsson to sell more products to its already sizeable customer base and attempt to fight off competition from Nokia.
This new wave of acquisitions is great news for telecoms and technology professionals. While Nokia will be looking to cut costs in the newly acquired Alcatel Lucent business, they have already made a number of pledges about maintaining staff numbers in certain geographies and maintaining the company’s commitment to various areas of research and development. In addition, the increased competition and revitalisation of the market will encourage companies to invest more in attempts to build their business and fight off new competition. We expect this to result in increased hiring in this area which will allow for greater opportunities for those working in this market segment or looking to move into it.
Source: Vine 10