Alcatel-Lucent has racked up billions in losses and undergone repeated rounds of restructuring since which its creation in 2006
HELSINKI—Nokia revealed it’s in advanced talks to buy ailing French telecom company Alcatel-Lucent, an apparent bid to become a leading global networks operator.
Hopes for a deal were boosted by news that the French government, which has a history of intervening in takeover attempts by foreign companies, would give its blessing.
In a brief statement, Nokia Corp. said the two companies are in negotiations “with respect to a potential full combination which would take the form of a public exchange offer by Nokia for Alcatel-Lucent.”
After plunging seven per cent in Helsinki, Nokia stock closed down 3.6 per cent at 7.49 euros in late trading while Alcatel-Lucent, which has been losing money since its creation in 2006, saw its share price leap 16 per cent in Paris. That put Alcatel-Lucent’s market value at 12.7 billion euros ($13.42 billion).
The Finnish company gave no details of the talks and denied further comment except to say that a further announcement would be made when appropriate.
“Nokia has been reorganizing the business for some time and the networks market is very competitive so it makes real sense to merge the networks,” said Neil Mawston from Strategy Analytics near London. “Nokia became a bit of a sprawling mess in the latter years with devices struggling and maps not quite living up to its expectations.”
Both companies’ chief executives, Nokia’s Rajeev Suri and Alcatel-Lucent’s Michel Combes, met with French President Hollande briefly on Tuesday afternoon but did not talk to reporters after the meeting. The French government said it would support the deal.
“It’s a good operation for Alcatel-Lucent” because it will allow the creation of a “European champion” with “no job cuts” in France, Economy Minister Emmanuel Macron said following the meeting at the Elysee.
Nokia, which began as a maker of paper and gum boots in 1865, transformed into a home electronics firm before becoming an innovator in the wireless industry and the world’s top cellphone maker. But it met its match when Apple launched the iPhone and also was unable to compete against Google Inc.’s Android operating system and cheaper handsets from Asia.
Recently, it has made a turnaround since its 5.4 billion-euro sale of the lossmaking handset business to Microsoft a year ago, with three remaining sectors: networks, mapping services and technologies and patents. It expects growth this year in all of them after a good fourth quarter result in 2014, when it reported a net profit of 443 million euros ($502 million) and sales growth of nearly 10 per cent to 3.8 billion euros.
Timo Seppala, senior researcher at Aalto University in Helsinki, described such a merger as a clear indication that the company, which makes most of its money from networks, is aiming to be a major player in global network services.
“Nokia wants to be one of the three big ones—a game player alongside China’s Huawei and Ericsson (of Sweden),” the market leaders in networks, Seppala said.
Networks, which recorded near-record profits and accounts for 90 per cent of Nokia’s sales, is expected to book a full-year operating margin of 11 per cent, up from the earlier estimate of 5 to 10 per cent, according to Suri.
Alcatel-Lucent, which has racked up billions of euros of losses and undergone repeated rounds of restructuring since the 2006 merger of France’s Alcatel and U.S.-based Lucent Technologies, said in 2013 that it plans to lay off 10,000 workers. Last year it made a net loss of 118 million euros.