Nokia (NYSE:NOK) announced today that it will purchase Alcatel-Lucent (NYSE: ALU) for $16.6 billion. The deal will reestablish the European vendor's presence in the wireline space, an area that it largely left behind in recent years to solely focus on wireless.
Nokia sold its optical and last mile businesses to Marlin Equity Partners in 2012 and its access network division to Adtran in late 2011. But with this purchase of Alcatel-Lucent, the company will gain a new set of optical, routing and broadband capabilities.
"Together, Alcatel-Lucent and Nokia intend to lead in next-generation network technology and services," said Rajiv Suri, CEO of Nokia, in a statement. "We will have a strong presence in every part of the world, including leading positions in the United States and China."
"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," and Alcatel-Lucent CEO Michel Combes said in a statement. "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."
Besides becoming a more formidable competitor to Ericsson (NASDAQ: ERIC) and Chinese competitors Huawei and ZTE, two companies that have significant market share in the broadband and optical markets, Nokia immediately will gain a foothold with key North American wireline customers such as CenturyLink (NYSE: CTL) and Verizon (NYSE: VZ). However, in North America, Huawei and ZTE have been largely banned from winning contracts with U.S. service providers over national security concerns.
The combined company also will be able to better fend off Ciena and Infinera, two vendors that have been enhancing their presence in the North American and European optical markets.
Verizon recently named Alcatel-Lucent as one of its 100G optical equipment providers for its long-haul optical network overbuild. Earlier, CenturyLink revealed that Alcatel-Lucent was the core routing vendor of choice to create a new common core MPLS network in order to accommodate further traffic growth across what were once multiple backbone networks it acquired from Embarq and Qwest.
Alcatel-Lucent has been retooling its focus on areas like IP routing to stand out from competitors like Ericsson and Nokia. It has also tried to seek out IP routing opportunities with large enterprises and content companies, many of which have been purchasing dark fiber to create and manage their own networks. Part of that mission includes partnerships with system integrators like Accenture while potentially leveraging large telco customers such as Orange to sell services to enterprise customers.
The combined company could also leverage the capabilities of the recently created Bell Labs consulting division, one that's focused on advising the IT and broader communications networking industry on such issues as software definable networking (SDN), cloud and IP routing.
Given Nokia and Alcatel-Lucent's presence in the wireless market, the combined company could become a more powerful force to address emerging wireless backhaul needs. While the wireless operators' LTE 4G wireless backhaul land rush has started to taper off, a number of wholesale operators have been reporting that they are seeing demand for higher speed fiber-based Ethernet speeds and even dark fiber.
Under the terms of the agreement, Nokia said it will give Alcatel-Lucent shareholders 0.55 shares in the combined company for each of their existing shares. Once it closes, which is expected to happen in the first half of 2016, Nokia will own 66.5 percent of the combined company and Alcatel-Lucent shareholders will control 33.5 percent.
When the deal closes, the combined company will be called Nokia Corporation, with headquarters in Finland and a strong presence in France. Risto Siilasmaa is expected to become chairman of the company while Rajeev Suri will serve as CEO. It expects to operate the business under the Nokia brand and intends to retain the Bell Labs brand to host its networks-focused innovation activities.
While the newly combined company would have a total of more than 100,000 employees, it will likely reduce its headcount when the deal closes. Both companies will engage in "organizational streamlining, rationalization of overlapping products and services, central functions and regional and sales organizations."
Each companies' board of directors have approved the terms of the proposed deal. The proposed purchase still has to gain approval by Nokia's shareholders.
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