New business set to take on current market leader in telecoms equipment provision, Ericsson
Nokia is to buy Alcatel-Lucent for Euro 15.6 billion (£11.2 billion) as the pair announced today that they intend to combine to create a company that will focus on next generation technology and services for an IP connected world.
Set to challenge current market leader in telecoms equipment provision, Ericsson, the two companies have entered into a memorandum of understanding under which Nokia will make an offer for all of the equity securities issued by Alcatel-Lucent, through a public exchange offer in France and in the US, on the basis of 0.55 of a new Nokia share for every Alcatel-Lucent share. The combined businesses will create a European telecoms equipment firm worth around £29 billion (Euro 40 billion).
The all-share transaction, which is expected to close in the first half of 2016, values Alcatel-Lucent at Euro 15.6 billion on a fully diluted basis, corresponding to a fully diluted premium of 34% (equivalent to Euro 4.48 per share), and a premium to shareholders of 28% (equivalent to Euro 4.27 per share). This is based on Nokia’s unaffected closing share price of Euro 7.77 on 13 April 2015.
The combined company, to be called Nokia Corporation, with headquarters in Finland and a strong presence in France, includes Alcatel-Lucent’s Bell Labs and Nokia’s FutureWorks, and will work towards new and up-coming technologies, including the Internet of Things (IoT) and the transition to the cloud. Nokia Technologies will stay as a separate entity of the business with a clear focus on licensing and the incubation of new technologies.
Risto Siilasmaa, current chairman at Nokia, is planned to serve as chairman of the new business, while existing president and CEO at Nokia, Rajeev Suri, will stand as CEO of the combined company.
Nokia’s Suri commented: “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. 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. We have hugely complementary technologies and the comprehensive portfolio necessary to enable the IoT and transition to the cloud. We will have a strong presence in every part of the world, including leading positions in the US and China.
“Together, we expect to have the scale to lead in every area in which we choose to compete, drive profitable growth, meet the needs of global customers, develop new technologies, build on our successful intellectual property licensing, and create value for our shareholders. For all these reasons, I firmly believe that this is the right deal, with the right logic, at the right time,” concluded Suri.
The new business is set to have a strong financial profile on which to grow and invest. On a full year 2014 combined basis, the proposed company would have had net sales of Euro 25.9 billion, a non-IFRS operating profit of Euro 2.3 billion, a reported operating profit of Euro 0.3 billion, R&D investments of approximately Euro 4.7 billion, and a strong balance sheet with combined net cash at 31 December 2014 of Euro 7.4 billion, assuming conversion of all Nokia and Alcatel-Lucent convertible bonds.
The combined company will be positioned to target a larger addressable market with an improved growth profile. Based on Nokia estimates, the addressable market of the combined company in 2014 was approximately 50% larger than the current addressable networks market for Nokia alone, increasing from approximately Euro 84 billion to approximately Euro 130 billion. The combined company is expected to have a stronger growth profile than Nokia’s current addressable market, with an estimated CAGR of approximately 3.5% for 2014 to 2019.
Assuming the closing of the transaction in the first half of 2016, the combined company would target approximately Euro 900 million of operating cost synergies to be achieved on a full year basis in 2019. The combined company would target approximately Euro 200 million of reductions in interest expenses to be achieved on a full year basis in 2017.
Michel Combes, CEO at Alcatel-Lucent, added: “A combination of Nokia and Alcatel-Lucent will offer a unique opportunity to create a European champion and global leader in ultra-broadband, IP networking and cloud applications. I am proud that the joined forces of Nokia and Alcatel-Lucent are ready to accelerate our strategic vision, giving us the financial strength and critical scale needed to achieve our transformation and invest in and develop the next generation of network technology.”
Continuing, Combes said: “This transaction comes at the right time to strengthen the European technology industry. We believe our customers will benefit from our improved innovation capability and incomparable R&D engine under the Bell Labs brand. The global scale and footprint of the new company will reinforce its presence in the US and China. The proposed transaction represents a compelling offer for our shareholders both in terms of upfront premium and long term value creation potential. 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. The new company will also provide our employees exciting opportunities to be part of a global leader.”
With a combined workforce of more than 40,000 R&D employees and a spend of Euro 4.7 billion in R&D in 2014, the combined company will be in a position to accelerate development of future technologies including 5G, IP and software-defined networking, cloud, analytics as well as sensors and imaging.
Alcatel-Lucent and Nokia have highly complementary portfolios and geographies, with particular strength in the US, China, Europe and Asia-Pacific. They will also bring together the best of fixed and mobile broadband, IP routing, core networks, cloud applications and services.
Each company’s Board of Directors has approved the terms of the proposed transaction. The proposed transaction is subject to approval by Nokia’s shareholders, completion of relevant works council consultations, receipt of regulatory approvals and other customary conditions.
On the back of this announcement, Nokia also announced today it is reviewing options for its HERE location and mapping business, which may include the sale of the company.