By Sam Schechner
PARIS-- Nokia Corp. has sealed an agreement to buy rival
telecommunications-equipment firm Alcatel-Lucent in an all-stock
deal that values the French company at EUR15.6 billion ($16.6
billion), the companies said Wednesday.
The deal caps what the companies said were years of talks,
beginning in the fall of 2013, based on the logic that Europe's two
smaller network-gear makers would eventually need to team up to
have the resources to compete globally against larger rivals
including Sweden's Ericsson AB and China's Huawei Technologies
Co.
"We had a wireless-network business that was too small to
compete with our main competitors, and a balance sheet that was a
bit less solid too, " said Michel Combes, Alcatel-Lucent's chief
executive at a news conference in Paris. "The merger with Nokia was
clear, it was evident."
The deal brings together two national industrial champions, each
of which had in recent years been laid low by corporate missteps
and intense competition. It will return Nokia to a position as a
global leader, giving it access to lucrative Alcatel-Lucent client
relationships in the U.S. and a suite of Internet-routing
technologies to complement its wireless gear.
"Customer consolidation has been ongoing for a number of years,
and it has created fewer, larger players with broader global
reach," Mr. Suri told analysts during a presentation on Wednesday.
"The proposed combined company will bring together the
complementary capabilities of both companies with a broader product
portfolio."
Under the agreement, which was approved by both companies'
boards, Nokia will issue 0.55 shares of stock for every outstanding
Alcatel-Lucent share, giving Alcatel-Lucent shareholders 33.5% of
the merged company when the transaction is complete. The companies
say they expect to close the deal in the first half of 2016.
After completion, Nokia will remain based in Finland under
existing Chairman Risto Siilasmaa and Chief Executive Rajeev Suri,
the firms said. Nokia said it would maintain strong research
facilities in France and nominate a vice chairman from
Alcatel-Lucent.
The structure of the deal--putting Nokia clearly in charge--was
an intentional response to the difficult experiences the companies
had both suffered in their own mergers a decade ago. France's
Alcatel feuded with the U.S.'s Lucent technologies, with an
American CEO and a French chairman battling for control, giving an
opening for competitors to seize market share.
"We learned from our mistakes," said Philippe Camus, chairman of
Alcatel-Lucent, who added that the current deal structure was
outlined by the two companies in September 2014, after considering
other possible structures.
Asset disposals are likely to follow as part of the deal. Nokia
said that it will conduct a strategic review of HERE, its mapping
business, which could lead to its eventual sale, Alcatel's
submarine-cable business will likely also be split off, perhaps in
an public offering, Mr. Combes said. Alcatel had already planned an
IPO of a minority stake of the business, which French official have
described as strategic.
The companies said the deal offers a premium of 28% over the
average Alcatel share price over the past three months, yielding a
valuation higher than some analysts had anticipated on Tuesday. But
Nokia said it sees the deal as being accretive to its shareholders
in part because the combined company will address a market that is
50% larger than its current wireless portfolio.
Cost cuts will be a factor in the deal. The firms are promising
to cut EUR900 million of yearly operating expenses by 2019 by
reducing duplicated products, overlapping real estate and other
overhead costs. The firms aim to slash another EUR200 million in
interest expenses.
For France, the deal means the end of an independent life for an
industrial icon. But the country was able to wrestle employment
commitments from the firm, following a meeting between Mr. Suri and
French President François Hollande on Tuesday.
Nokia said Wednesday that it intends to maintain head count in
France at the levels Alcatel agreed to in a round of job cuts it
started 18 months ago, and would hire several hundred research
staffers. The Finnish company also said it intends to create a
EUR100 million investment fund for startups in France.
Write to Sam Schechner at sam.schechner@wsj.com
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