Nokia's network profits drop, raise concerns over Alcatel deal

Thu Apr 30, 2015 10:04am EDT
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By Jussi Rosendahl and Leila Abboud

HELSINKI/PARIS (Reuters) - Finland's Nokia NOK1V.HE reported quarterly profits well below market forecasts at its telecom network equipment business, sending its stock tumbling 10 percent and raising concerns over its planned takeover of smaller rival Alcatel-Lucent ALUA.PA.

First-quarter revenue was ahead of expectations, but operating profit dropped 61 percent, which Nokia blamed largely on the need to cut prices to secure major mobile contracts in China and on weaker software sales.

With Nokia shares now trading about 20 percent lower than before the Alcatel deal was announced, significant divergence in the performance of both companies could call into question the terms of the all-share offer valuing Alcatel-Lucent at 15.6 billion euros ($17.5 billion), analysts said.

Alexander Peterc, an analyst from Exane BNP Paribas, said it would arguably be better for the deal's prospects if Alcatel also posted a weak first quarter.

"Otherwise disgruntled shareholders deploring what they describe as low exchange parities in Nokia's all-share bid for Alcatel might start campaigning for an upward revision of Nokia's bid."

Similar pressures recently imperilled the cement industry's mega-merger between Holcim and Lafarge before new terms were reached, and could affect Shell's planned buy of BG.

Shares in Alcatel-Lucent, which reports quarterly earnings on May 7, dropped more than 7 percent by 1328 GMT (0928 EDT).

The ranks of investors betting against Alcatel-Lucent appear to be growing: according to Markit data, 44 percent of the shares that can be borrowed are out on loan, indicating high levels of interest from short sellers who believe shares will fall. That compares to 38 percent before the Nokia deal was announced.   Continued...

A view of Nokia's head offices in Espoo, Finland, April 15, 2015. REUTERS/Antti Aimo-Koivisto/Lehtikuva