Nokia in talks to acquire rival Alcatel

Paris/Stpckholm: Nokia Oyj is in advanced talks to acquire Alcatel-Lucent SA in the Finnish telecommunications equipment maker’s biggest ever acquisition that could give the French rival a market value of more than $13 billion.

The negotiations may lead to a takeover offer for Paris-based Alcatel, although there is no certainty that an agreement can be reached, the companies said in statements on Tuesday.

Alcatel shares jumped 18% in the French capital to the highest price in almost seven years.

Nokia fell as much as 8.3% on the Helsinki exchange.

The combined entity would become the biggest maker of wireless-network equipment, surpassing Sweden’s Ericsson AB and Huawei Technologies Co. of China, according to IDC.

The deal would let chief executive officer Rajeev Suri bolster Nokia’s position in China, a market with about 1.3 billion mobile subscribers, and take on some contracts with the two biggest US carriers—Verizon Communications Inc. and AT&T Inc.

“It’s a real game changer,” said Sami Sarkamies, an analyst at Nordea Bank AB in Helsinki. “They have a lot of work ahead, but Suri has a good background for this.”

Shares of Nokia lost 3.3% to 7.52 euros at 3.30pm in Helsinki, after dropping as low as €7.13.

A takeover will probably dilute Nokia’s profit margins from the wireless business, according to Bloomberg analysts John Butler and Matthew Kanterman.

Alcatel advanced 14% to €4.40 in Paris, after rising as high as €4.57.

Nokia and Alcatel have more than 110,000 workers combined.

Suri, who took over as head of Nokia’s networks unit in 2009, has revived the business by cutting more than 25,000 jobs over the past three years and focusing on more lucrative contracts.

Nokia executives are seeking to secure French state backing for a deal, a person familiar with the matter said. Any deal would need a green light from President Francois Hollande’s government, which has previously tried to block corporate mergers in the country. Hollande has a meeting scheduled with heads of Nokia and Alcatel on Tuesday, the president’s office said.

The government will pay attention to possible impact for jobs and operations at Alcatel’s French sites, a spokeswoman for the economy ministry said by phone.

Qiao Yuhua, a spokeswoman for Alcatel-Lucent Shanghai Bell, declined to comment on how a deal would affect the Chinese network-equipment venture.

The takeover would also let Nokia add products used for transmitting landline and Internet traffic, giving it a more complete offering to sell to carriers as the amount of data travelling on networks increases with the popularity of Netflix and other video and music services.

In a response, Ericsson could seek to combine with Juniper Networks Inc., a maker of Internet routers with a market value of almost $10 billion, Nordea’s Sarkamies said. A spokesman for Ericsson declined to comment.

Ericsson is now the largest maker of wireless-network gear, which includes equipment such as base stations and antennas that transmit mobile-phone calls and data, with a market share of 25.7 percent in 2014, according to IDC. Huawei had 23.2%, Nokia 15.8% and Alcatel 11.4% share.

Alexander Peterc, an analyst at Exane BNP Paribas, said Alcatel could be worth €4.50 per share in a sale, which would value the company’s equity at €12.7 billion ($13.4 billion).

A planned disposal of Nokia’s maps business, HERE, has led analysts to speculate that the proceeds could be used to help pay for acquisitions.

Bloomberg News reported on Friday that Nokia is exploring a sale of HERE. Nokia’s purchase of Alcatel may be the biggest in the industry since at least 1999, when Lucent Technologies Inc. bought Ascend Communications Inc. for about $21 billion, according to Bloomberg data.

Depending on the final terms of the deal, it would also be comparable to the transaction that created today’s Alcatel: the French company’s purchase of Lucent in 2006 for $13.4 billion, according to Bloomberg data.

The deal would top Nokia’s record acquisition of map provider Navteq Corp. for about $8 billion in 2008, and would be the biggest-ever by a Finnish company. Consolidation has dominated conversations in the network-equipment industry for at least the past five years, as price wars dragged down profits and carriers reduce spending on infrastructure amid sluggish revenue.

Talks between the firms have been on and off in the past. In 2013, Nokia weighed options including a combination with Alcatel’s mobile-phone networks unit.

Alcatel shares have more than tripled since Michel Combes became CEO in 2013 as he reduced costs and landed contracts from new customers.

Combes has less than eight months left of his three-year turnaround plan, aimed at making Alcatel profitable and helping it generate cash.

The company lost billions of dollars in the years following its deal with Lucent as its struggled to revive sales growth.

At the time of the merger, the combined company had an aggregate market value of €30 billion.

Founded as a wood-pulp mill in 1865, Nokia’s transformations have included switches from rubber boots and toilet paper to cables, televisions, computers and mobile phones.

It was the world’s largest handset maker—with a market value reaching €300 billion—before Apple Inc. and Samsung Electronics Co. claimed its leadership.

Nokia shares have more than doubled since the company agreed to sell its mobile-phone business to Microsoft Corp. in 2013 for about $7.5 billion. Its €5 billion in net cash can now help the Finnish company finance a transaction. Bloomberg