Nokia has agreed to buy Alcatel-Lucent in an all-stock deal that values the French company at €15.6 billion, it announced on Wednesday.
The deal will enable the merged entity to build scale in the network equipment market, making it better able to compete with Ericsson and Huawei, while providing Nokia with a stronger presence in North America, as well as in other key geographies.
But despite talking up the strengths of the merged outfit – which include scale, complementary portfolios, and R&D prowess – the leaders of both companies were insistent that this is in fact not a true merger and will not succumb to the pitfalls that dogged the previous integration processes both have been through in recent years.
"This is not a joint venture," said Nokia CEO Rajeev Suri, on a conference call. There will be no conflict between the boards of the two vendors, he said. The new Nokia will adopt a "no politics, no nonsense approach to running the business."
That business will use the Nokia name and will be headquartered in Finland with Suri as president and CEO, with Nokia chairman Risto Siilasmaa retaining his position.
Alcatel-Lucent, which will hold a stake of 33.5% in Nokia if the offer to shareholders is fully taken up, will be able to appoint three board members, including the vice chairman.
"[Suri is] a true leader," said Alcatel-Lucent CEO Michel Combes. "I will remain a demanding shareholder."
The Bell Labs brand will survive the integration though, and Suri was quick to point out that while the new Nokia will be "clear on the leadership of the company from day one," that does not mean there will be no place for the Alcatel legacy.
"We are making explicit commitments to France as part of this transaction," said Suri, noting that Nokia will establish a cyber-security lab in France, similar to an existing facility it runs in Berlin, and will also operate a 5G and small cells centre of excellence in the country.
Suri also committed to maintaining employment in France at levels consistent with Alcatel-Lucent’s ongoing Shift Plan.
Whether Nokia’s mapping business, Here, survives the shake-up remains to be seen.
In a separate announcement, Nokia revealed that it has initiated a strategic review of the business that could lead to a sale. Earlier this week there was talk of Nokia selling Here in order to fund the Alcatel-Lucent takeover. The business is valued at around €2 billion.
"It may or may not result in a transaction," said Timo Ihamuotila, Nokia’s chief financial officer.
Ihamuotila also said Nokia will look at other "possible divestment opportunities and [identify] non-core assets."
The firms aim to realise €900 million in operating cost synergies in 2019, in addition €200 million in reductions in interest expenses in 2017.
Impact in US, China
Nokia and Alcatel-Lucent have "highly complementary portfolios and geog raphies," Suri said. "This deal will enable us to create a European technology champion."
Together the companies recorded sales of €25.9 billion last year and have a market cap of more than €45 billion.
On the portfolio side, the merger combines Alcatel-Lucent’s growing business in IP networking and cloud with Nokia’s mobile broadband focus.
And in terms of geography, Alcatel-Lucent brings a strong presence in the U.S., while the combination of the two companies will build scale in Asia, particularly in China; Alcatel-Lucent’s 50% plus one share holding in Alcatel Shangahi Bell will become part of Nokia, and Suri expressed his support for the Chinese government’s innovation and technology development initiatives.
The deal will require regulatory approval in the U.S., but the vendors insist this should not pose a problem.
Combes said he has held "personal discussions" with the big three telecoms operators in the U.S. and they are "all supportive of this transaction," something that should facilitate the regulatory process.
"I foresee a smooth process in the U.S.," he said.
Subject to the approval of Nokia shareholders and various regulatory bodies, the companies expect the deal to close in the first half of 2016.
In the meantime, they pledged to maintain momentum in their existing businesses and to begin work on the integration in such a way that it does not distract from day-to-day business.
Nokia will announce the appointment of an integration leader internally on Friday, enabling the current management team to focus on its job, Suri said.
"I understand exactly what not to repeat," he said.
