Nokia has agreed to acquire fellow telecommunications company Alcatel-Lucent for $16.6 billion. Each company’s board of directors has approved the terms of the proposed transaction, which is expected to close in the first half of 2016.
Upon closing, the transaction positions the united company, which earned a combined total of $27.7 billion in revenue during FY14, to bolster R&D and foster competition against Chinese telecommunications providers Huawei Technologies and ZTE, as well as European rival Ericsson.
Through a public exchange of shares, Nokia will offer company shareholders 0.55 of a new Nokia share for every Alcatel-Lucent share. If Alcatel-Lucent accepts the offer, its shareholders would own 33.5% of the fully diluted share capital of the combined company, while Nokia shareholders would own 66.5%.
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“Together, Alcatel-Lucent and Nokia intend to lead in next-generation network technology and services, with the scope to create seamless connectivity for people and things wherever they are,” said Rajeev Suri, President and CEO of Nokia. “Our innovation capability will be extraordinary, bringing together the R&D engine of Nokia with that of Alcatel-Lucent and its iconic Bell Labs. We will continue to combine this strength with the highly efficient, lean operations needed to compete on a global scale.
The combined company will be called Nokia Corporation, with headquarters in Finland and a presence in France. Risto Siilasmaa will serve as company Chairman, with Suri as CEO.
The combined company is targeting operating cost savings of approximately $950 million to be achieved on a full year basis in 2019. The cost advantage is expected to come from numerous areas, including:
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Organizational streamlining, rationalization of overlapping products and services, central functions, and regional and sales organizations;
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Reduction of various overhead costs in real estate, manufacturing and supply chain, IT and overall general and administrative expenses, including redundant public company costs; and
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Procurement given expanded purchasing requirements of the combined company.
“The proposed transaction represents a compelling offer for our shareholders both in terms of upfront premium and long term value creation potential,” said Michel Combes, CEO of Alcatel-Lucent. “Shareholders of Alcatel-Lucent now have the opportunity to participate in the future upside of the industrial project that they have supported during the last two years, through a stronger combined business with greater global scale and a better position for the longer term.”
