Boards approve €15.6bn Nokia deal for Alcatel-Lucent

Upheaval is in the air in the network infrastructure industry as the rumoured acquisition of Alcatel-Lucent by Nokia, acknowledged yesterday by the former, was officially announced by the latter this morning.  The transaction places a value of around €15.6 billion on Alcatel-Lucent, which Nokia will acquire in full.

Speaking at a press conference announcing the confirmed deal, Nokia Chairman Risto Siilasmaa announced his excitement to be working alongside Alcatel-Lucent, in what could create a global infrastructure player capable of challenging market leaders Huawei and Ericsson.

“I’m immensely satisfied to announce today our plan to combine Nokia with Alcatel-Lucent, a combination that will create an innovation leader in NGN and cloud technology,” he said. “This is certainly a decision that hasn’t been taken lightly, either by Nokia or Alcatel-Lucent.”

Siilasmaa continued by highlighting the complimentary nature of each vendor’s product portfolio. Considering Nokia gaining most success in the wireless, LTE and RAN domains, and Alcatel-Lucent’s fixed and optical strengths, he said: “The combination with Alcatel-Lucent appeared attractive from the outset.

“This is not just a good option, but the best of all the possible alternatives,” he said. “There were multiple exciting strategic alternatives available to us, which we assessed over many months. It became clear, however, that this transaction was unique in what it enabled for the human vision of a programmable world. This deal is based on a firm strategic view of the tech portfolio needed for the future.”

“This is primarily about scope, not scale,” he concluded.

Rajeev Suri, Nokia’s President and CEO, overviewed some of the combined firm’s strategic objectives, and spent some time emphasising the importance of continuing the strong R&D focus each company has prided itself on. He went on to say that some 40,000 R&D employees will be focussing on developing 5G, IP, SDN, cloud, analytics and IoT at Nokia.

“France will be home to a huge R&D headquarter, as well as a 5G innovation centre,” he said. “Most people are now connected, now it’s about connecting things in what we call the ‘Programmable World’.”

When asked about how Nokia’s traditional R&D teams in Finland may be affected by the incoming Alcatel-Lucent research teams, Suri confirmed that while it’s not possible to confirm the extent of any downsizing yet, Finland will remain integral to Nokia’s R&D ambitions, particularly citing existing product lines such as BSS.

“There will be some impact on headcount overall, but we’re not at the point to say how many job losses will take place,” he said. “I can confirm that Finland will remain extremely important to Nokia’s R&D aims.”

Alcatel-Lucent’s chairman of the board of directors, Philippe Camus, reiterated the firm’s ambitions to create a global infrastructure powerhouse. “The combination of Nokia and ALU leads to the establishment of a major European player in industrial digital technology with profound roots across Europe and Asia.”

The deal, which is expected to be completed at some point in the first half of 2016, could spell trouble for a few major tech firms in the industry, according to Bengt Nordstrom, CEO of mobile consultancy Northstream.

Speaking exclusively to Telecoms.com about the acquisition, Nordstrom said:

“At a stroke, the infrastructure market would expand from two big players, Ericsson and Huawei, to three,” he said. “A potential acquisition would give Nokia a company whose products very much complement its own current portfolio. Ericsson in particular would face a strong competitor, both geographically and on the product side.

“The deal could be negative for Ericsson. If the expanded Nokia is able to successfully integrate AlcaLu’s assets into its business, it’ll create a strong competitor to Ericsson, both geographically and in terms of products. However, as we’ve seen in the past, mergers in any industry are complex and risky, with a high failure rate.”

Nordstrom also highlighted the risk posed by the deal to Samsung, which has been showing ambitions of moving more aggressively into the network infrastructure market lately. Nordstrom reckons Samsung may well have now missed the window to enter an increasingly competitive and crowded market.

“If the deal goes ahead, it could spell bad news for Samsung in particular, who has been quite vocal in wanting to grow its network infrastructure business,” he said. “A potential Nokia-Alcatel tie-up greatly reduces the window for Samsung to enter what is already a competitive and shrinking infrastructure market.

The deal is subject still to competition authority approval in jurisdictions across the world, in order to ensure anti-competition in the market is not an option. Nokia’s CEO, Suri, was unable to clarify the regulatory status any further, however the wide array of competition at present in the industry means regulation is not likely to be an inhibitor to the transaction.