Nokia tie-up deal with Alcatel-Lucent at advanced stage but facing hurdles

Nokia is in advanced talks to buy Alcatel-­Lucent, a move that would create a giant to rival Ericsson and Huawei.

The deal under consideration is a ‘full combination’ that would entail Nokia making a public offer for Alcatel-Lucent stock.

Finnish telecommunications equipment maker Nokia is in advanced talks to buy French rival Alcatel-­Lucent, a move that would create a new global networking giant to rival Sweden’s Ericsson and China’s Huawei Tech-­nologies.

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 tie-up could still fall apart, they added.

It isn’t clear if the parties have agreed on a valuation.

Alcatel-Lucent’s market capitalisation stands at roughly €11 billion ($15.33bn), while Nokia’s market capitalisation is about €28bn.

In response to the statement, Alcatel-Lucent’s shares rose 13 per cent to €4.38 in morning trading in Paris, while Nokia shares fell 7.3 per cent to €7.205.

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 €25.9bn and more than 100,000 employees in businesses spanning wireless communications and internet routing.

Market leader Ericsson reported revenue of €25.1bn last year, while Huawei’s telephone-carrier equipment business had revenue of about €23.6bn. Cisco, which competes with Alcatel in internet routing, amid its broader enterprise and consumer businesses, had revenue of $US47.1bn ($62.2bn) for the year ending July 26 last year.

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.

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 tie-up would join two companies that are emerging from a troubled wave of consolidation nearly a decade ago. At the time, the two 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.