Not everyone pleased with Nokia’s €15.6 billion takeover offer for Alcatel-Lucent

Nokia is set to acquire Alcatel-Lucent in an all-share deal that values its smaller French rival at €15.6 billion (US$16.6 billion), building up its telecom equipment business to compete with market leader Ericsson.

With approximately 114,000 employees and sales of around €26 billion, the combined company will rank a strong second in mobile equipment, with global market share of 35 per cent, behind Ericsson at 40 per cent and ahead of Huawei’s 20 per cent.

The merged company will have stronger exposure to the important North American market, with major AT&T and Verizon contracts.

It will also fill gaps in its product portfolio with Alcatel-Lucent’s technology in optical transmission and Internet routers.

While Huawei does have a complete product line across both fixed and mobile, Ericsson does not and may have to react with deal-making or partnerships, executives said.

Nokia will give Alcatel-Lucent shareholders 0.55 shares in the combined company for each of their old shares, putting 33.5 percent of the entity in Alcatel-Lucent l shareholders’ hands if the tender offer is fully taken up.

The deal will be finalised in the first half of 2016 and is expected to result in €900 million of operating cost savings by the end of 2019, the companies said.

Nokia shares fell 1.5 per cent, adding to April 13’s 3.6 per cent fall, while Alcatel-Lucent fell 15.5 per cent, giving up most of the gains it made on April 13 when the talks were first acknowledged by the companies.

Nokia initially approached Alcatel-Lucent about buying only the wireless business but was rebuffed, leading to the broader deal, Alcatel-Lucent CEO Michel Combes told Reuters in an interview.

The deal carries significant risks, however. The track record of mergers in the sector – including the two that gave birth to Nokia and Alcatel-Lucent a decade ago – has been poor. Prior deals were plagued by the difficulty of cutting costs in an R&D intensive business, rivals stealing contracts while the companies were distracted by their integrations, and struggles over power within the married firms.

Nokia CEO Rajeev Suri sought to reassure.

“This is not a joint venture, so there will be no governance issues,” he said on a call with investors. “We will take a no politics, no nonsense approach to running the business, and have learned from past mistakes.”

Nokia pledged to keep France as “a vibrant centre of the combined company” and not to cut jobs beyond what Alcatel-Lucent had already planned, especially protecting research and development sites at Villarceaux and Lannion.

Nokia sold its once-dominant mobile handset business to Microsoft last year after struggling to compete with smartphones by Apple and Samsung. That deal left it with the network unit, a smaller map unit and a portfolio of technology patents.

Nokia said its growth profile would be improved by the deal and predicted a sales growth rate of about 3.5 per cent for 2014 to 2019. Nevertheless some investors remained concerned.

Separately, Nokia confirmed it was exploring the sale of its HERE mapping unit, which some analysts value at up to €6.9 billion. It also said further asset sales could be undertaken once the deal was completed.