Nokia in talks to buy Alcatel-Lucent; France backs deal

Tue Apr 14, 2015 2:38pm EDT
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By Jussi Rosendahl and Leila Abboud

HELSINKI/PARIS (Reuters) - Nokia Oyj NOK1V.HE is in talks to buy smaller telecom equipment maker Alcatel-Lucent ALUA.PA, a deal combining the industry's two weakest players that is backed by the French government but could pose challenges in cutting costs.

In a joint announcement, the Finnish and French companies said they were in "advanced discussions" on a "full combination, which would take the form of a public exchange offer by Nokia for Alcatel-Lucent". The two, which have been seen as a possible combination for the last several years, cautioned that the discussions could still fall apart.

Shares in Alcatel, a group worth about 11 billion euros based on Monday's closing share price, rose about 16 percent. Shares in Nokia, worth about 29 billion euros, fell as much as 7 percent in morning trade before paring back losses to end down 3.6 percent. France's Le Monde newspaper reported that a further announcement could come as early as Wednesday.

The pair are a good fit in terms of products and geographies, and bulking up would help them cut costs as they try to compete with mobile market leader Sweden's Ericsson (ERICb.ST: Quote) and low-cost powerhouse China's Huawei.

Nokia would expand its presence in the key United States market where Alcatel-Lucent is a major supplier to operators AT&T (T.N: Quote) and Verizon (VZ.N: Quote), and get access to the French firm's fast-growing, profitable Internet routing business.

But the track record of mergers in the industry is spotty, in part because of the difficulties of cutting costs in a R&D intensive business where companies cannot simply drop products that global telecom operators rely on.

The last round, which gave birth to Alcatel-Lucent and combined Nokia's networks business with Siemens about a decade ago, saw both firms lose value and market share as rivals went on the attack while they were busy integrating the businesses.

The French government, which has a record of intervening in major takeover deals and is sensitive about job cuts and keeping a French foothold in strategic industries, publicly backed the plan. Economy Minister Emmanuel Macron hailed it as an opportunity to reconquer lost markets and saying he had secured "clear undertakings" from Nokia that reassured him.   Continued...

A woman holds a smartphone in front of a screen displaying both Nokia and Alcatel Lucent logos in this photo illustration in Paris, April 14, 2015. REUTERS/Benoit Tessier