Nokia finally sells Alcatel Submarine Networks

The deal brings to a close years of speculation over the future of the subsea networks business the Finnish equipment maker inherited when it acquired Alcatel-Lucent the best part of a decade ago.

Nokia has tried many times to offload the unit since it completed the Alcatel-Lucent purchase at the start of 2016 and has been linked with many possible buyers. At one stage it even looked like Nokia was resigned to hanging on to the company itself. But ultimately, Alcatel Submarine Networks is a strategic asset for the French state and as such the government has decided to put its hand in its pocket, regardless of the distraction of an upcoming election.

Nokia has inked a deal with the state – specifically the Agence des participations de l'Etat (APE), a body that holds the government's strategic assets – to sell an 80% stake in Alcatel Submarine Networks (ASN) at an enterprise value of €350 million. It did not provide further financial details, but according to various French press reports, including La Tribune, once debt is taken out of the equation the state will pay around €100 million.

Nokia will hang on to a 20% stake for now, along with board representation, to ensure a smooth transition, it said, However, the plan also includes a "targeted exit," with the state slated to pick up the remaining 20%, although we don't know at what cost or when.

The first part of the deal is scheduled to close at the end of this year or early in 2025, subject to consultations with employees, regulatory approvals and so forth.

"The proposed sale of ASN to the French State is the result of extensive discussions which concluded that the French State is the most relevant custodian of ASN," Nokia said, in a statement. "The French State, as a stable owner with a long-term interest in the operation and maintenance of critical infrastructure, ensures continuity for ASN customers, employees, and partners."

Those extensive discussions have been taking place, on and off, for years. As La Tribune explains, Nokia has considered selling ASN to a number of different buyers, including optical transport equipment maker Ekinops and France's incumbent telco Orange. Those talks all fell apart and in 2019 Nokia made the decision to keep ASN.

However, against a difficult economic backdrop and with some financial difficulties Nokia backtracked about a year ago, the paper claims. It presented several different buyers to the government, which has a say in the asset's ownership due to its strategic nature, but none found favour with the executive.

Indeed, Le Monde quotes the government as saying that "the potential buyers did not completely suit us." Hence the decision to pay up and take control of the asset.

As far as Nokia is concerned, this deal is about offloading a non-core asset.

"This is a good step forward in our strategy of actively managing our portfolio," said Nokia CEO Pekka Lundmark. "ASN has been a standalone part of our Network Infrastructure business and through the divestment, Network Infrastructure will benefit from a streamlined portfolio with a focus on growth and strengthening its technology leadership."

Nokia will account for ASN as a discontinued operation starting in Q2, leaving its Network Infrastructure division with three units: Fixed Networks, IP Networks and Optical Networks. The loss of ASN will reduce the division's net sales by around €1 billion, but will increase its operating profit margin by 100-150 basis points, Nokia said.

After years of back-and-forth with ASN, the equipment maker finally has an exit strategy. Now all it has to do is jump through the relevant hoops to get the deal over the line.