Nokia, Alcatel-Lucent post strong results as merger approaches

Thu Jul 30, 2015 3:37pm EDT
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By Leila Abboud and Jussi Rosendahl

PARIS/HELSINKI (Reuters) - Shares in telecom network gear makers Nokia NOK1V.HE and Alcatel-Lucent ALUA.PA jumped on Thursday after both posted strong second-quarter results, giving a positive signal ahead of their pending merger.

Nokia's 15.6 billion euro ($17 billion) acquisition of Alcatel-Lucent announced in mid-April aims to position the company to better compete with market leader Ericsson (ERICb.ST: Quote) and low-cost Chinese powerhouse Huawei [HWT.UL], by forging a strong number two in mobile with a more complete product line.

But with competition in the sector remaining intense and demand from telecom operators soft, some investors still have concerns about the marriage.

Analysts warn competitors may exploit any uncertainty among customers created by the merger. The deal is supposed to be completed by mid-2016, although Alcatel-Lucent hinted that closing could come earlier since some key regulatory approvals had already been secured.

Shares of Nokia surged 7.8 percent while Alcatel gained 5.7 percent, having slumped 20 percent and 27 percent respectively in the past three months against a 20 percent fall for Ericsson.

Analyst Alexander Peterc at Exane BNP Paribas, with a "buy" rating on both, said the results boded well for the takeover.

"Nokia's quarter was much better than expected on the operating margin and Alcatel's performance was good as well," Peterc said. "There are no signs that the financial results of the companies are diverging in Alcatel-Lucent's favor, so there is little chance that the terms of the deal are renegotiated."

A handful of Alcatel-Lucent investors including third-largest holder Odey Asset Management had called for better terms after its first-quarter results were markedly better than Nokia.   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