Nokia – Alcatel Lucent Deal: What Nokia has in mind

By Gaurav Pradhan

Nokia has announced that it is going to buy Alcatel-Lucent in an all share deal. This is regarded as a big gamble by Nokia for entering the Enterprise Business market. Nokia’s intention is to merge with Alcatel Lucent to become an innovation leader in next gen technology and services for an IP connected world.

Nokia has made an offer for the total equity securities issued by Alcatel Lucent through a public exchange offer in two countries – France and United States. The basis is 0.55 of new Nokia share for every Alcatel Lucent share. Transaction being an all-share one values at EUR 15.6 billion on a fully diluted basis, subjected to a fully diluted premium of 34% (approx. EUR 4.48 per share) and a shareholder premium of 28% (approx. EUR 4.27 per share) based on the unaffected weighted average share price of Alcatel Lucent in past three months. This calculation is based on the Nokia’s unchanged closing share price of EUR 7.77 on April 13^th, 2015.

This deal is expected to get complete by mid of 2016, completing all the formalities such as Shareholders’ Approval, completion of related work council consultants, regulatory approvals and other customary formalities.

French Government Welcoming the Deal

This is very surprising to hear that French Government, which has been a spoiler in some of the Europe’s biggest corporate merger and acquisition deals, is welcoming this deal with open hands. This can be regarded as Alcatel’s desperation and need of a bigger player to stay alive in the market which is being dominated by Asian and European players.

Diversity vs Focus – Nokia’s Approach

The combined company is setting itself to position uniquely in the market, building up capabilities of seamless connectivity, enabling the next wave of technological chance, driving IoT and Cloud Transition.

This can be possible due to presence of Alcatel Lucent’s Bell Labs and Nokia’s FutureWorks & Nokia Technologies, which is going to stay as a separate entity, focused more on licencing and incubation of new technologies. With 40000 R&D employees and a budget spend of EUR 4.7 billion in R&D in 2014, the company is best placed to accelerate the development of next gen technologies such as 5G, IP and software-defined networking, analytics, cloud along with sensory and imaging technology.

Nokia and Alcatel Lucent are complementary in terms of portfolios and geographies, particularly in in US, Europe, China and Asia-Pacific. They also promise to bring on table the best of fixed and mobile broadband, core networks, IP routing, cloud applications and services. These products and services are trying to expand the enterprise business market, touching every company and individual, reaching out to every consumer in need to stay connected.

What is in Store for Nokia

The clear winner in this deal is Alcatel in terms of shareholder gains. Nokia’s stockholders are going to face a long duration of restructuring costs, scrapped dividends and diluted share prices. According to analysts, this is a high price high risk deal for Nokia because of integration & possible restructuring of businesses.

This alliance is a major threat to their major global rivals Ericsson and China’s Huawei Technologies. Its combined revenue in 2014 was €25.9 billion ($ 27.4 billion), higher than Ericsson’s €25.1 billion. Merged Nokia-Alcatel will result in a company with a market value of close to $ 40 billion, almost the same size that of Ericsson ($ 42 billion market cap). Nokia is going to face a major challenge which nicely handled can reap great rewards. The challenge – integration – is very much required. Streamlining products, merging technical platforms, logistical details and high cost restructuring to create single entity having 100,000 employees from different work cultures.

Rewards is the exposure to the North American market which presently generates 40% revenue for Alcatel Lucent. It is a lucrative market with high margins with sustainable volumes of business.

As it is observed Nokia & Alcatel Lucent are trying to be visionary, planning for long term to compete their rivals – Ericsson and Huawei in coming years. Their capabilities are complementary, but it has to be seen in coming days the merged company can generate business and revenue because of their created synergies.

(Author is a Management student of IIM Bangalore having an experience in Manufacturing Industry, Follow On Twitter @GauravToYou)

Also Read:

What’s at stake in the $ 16.6 billion Nokia – Alcatel Lucent Deal – Fortune – http://fortune.com/2015/04/16/nokia-alcatel-lucent/

Nokia – Alcatel Deal: 18% revenue to come from India, APJ – The Times of India – http://timesofindia.indiatimes.com/tech/tech-news/Nokia-Alcatel-deal-18-revenue-to-come-from-India-APJ/articleshow/46989137.cms

Nokia buys Alcatel to take on Ericsson in telecom equipment – Reuters – http://in.reuters.com/article/2015/04/15/nokia-alcatel-lucent-m-a-idINKBN0N60CP20150415

Trends transforming the future of Enterprise IT – Social Media Trend – https://www.socialmediatrend.in/technology/trends-transforming-the-future-of-enterprise-it/

What it means to be on ‘Cloud’! – Social Media Trend – https://www.socialmediatrend.in/technology/what-it-means-to-be-on-cloud/