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Nokia & Alcatel-Lucent: What's Going On?

Ray Le Maistre
4/15/2015

Nokia didn't hang around once it revealed early Tuesday that it was talking with Alcatel-Lucent about the creation of a mega-vendor: On Wednesday morning it unveiled the details of its €15.6 billion (US$16.6 billion) all-stock takeover bid for its Franco-American peer.

So what's going on? Light Reading has analyzed the ins and outs of this deal during the past two days -- here's a guide to what you need to know.

If the deal closes, the Finnish giant is going to swallow Alcatel-Lucent, proceed under the Nokia name only as from next year, and build a future based on scale, fixed/mobile integration, cloud/virtualization capabilities, IoT and 5G investments and a broad range of professional services targeted at communications service providers (CSPs).

There's a lot to consider, so when the two companies announced on Tuesday they were in talks, we looked at the history of the negotiations, how the companies stack up in terms of their financials and geographic spread and the main challenges they face in trying to pull together two large organizations.

We also asked a number of industry analysts for their views, analyzed the move in a video interview and penned a haiku!

There will be plenty more to come, especially as the integration plans emerge and the French government takes a close look at the plans. Watch out for more coverage.

— Ray Le Maistre, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, Editor-in-Chief, Light Reading

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Mitch Wagner
Mitch Wagner
4/16/2015 | 10:26:55 AM
Hope over experience
Nice, pithy sum-up from The Economist: The Nokia-Alcatel merger represents the triumph of hope over experience. Talks about the long history of difficult telecom mergers, including both Nokia/Siemens and Alcatel/Lucent, then points out this one could work. The two companies together have scale to make them more competitive, but this merger is about product scope rather than scale. The two companies have complementary lines. "Alcatel-Lucent is strong in internet routers, for example, but its wireless business is small. Nokia's wireless-networks business, by contrast, is almost too dominant: it now accounts for 88% of revenues. ... " Also (not noted by The Economist), AlcaLu is strong in the emerging area of SDN, where Nokia is weak.

The French government "has given the deal a warm welcome," which is weird, says The Economist:

Still, it is strange that two weeks ago Emmanuel Macron, France's economy minister, intervened to prevent Orange, its biggest telecoms firm, from selling Dailymotion, a video-hosting site, to a Hong Kong buyer, prompting a rival offer from Vivendi, a French firm, instead. If Dailymotion is a strategic national asset it is hard to see why Alcatel, a stalwart of France's blue-chip CAC-40 index until its recent decline, is not.
MordyK
MordyK
4/15/2015 | 4:53:36 PM
Re: Beware the tar pit
"for a few years"

I'm sure the number will hover around that for a given period, but after that "period" all bets are off.

ALso remember that ALu has already done some significant internal downsizing during "Shift", which means there's little need for additional cuts from the merger, unless there's significant overlap with another unit.

Truth is this is all hypothetical as we all have no clue :)
mendyk
mendyk
4/15/2015 | 4:39:10 PM
Re: Beware the tar pit
I doubt that the national government would endorse a deal that would result in a diminished presence (and loss of jobs) in France. I think that would be the case even if Sarkozy and his crew were in charge. In general, agencies and regulators don't give absolute priority to what the involved businesses say they want. ALU has about 6,000 employees in France. I'm guessing that number won't change for a few years if this deal happens.
MordyK
MordyK
4/15/2015 | 4:27:53 PM
Re: Beware the tar pit
@MendyK I'm sure there were some minor concessions to the fench, but the French weren't in a very good bargaining position this time compared to their last rounds, so I wouldn't bet that they had much say. Only time will tell.
mendyk
mendyk
4/15/2015 | 2:49:19 PM
Re: Beware the tar pit
If it's true that the French government has already signed off on this deal (as has been reported), that's one big potential obstacle out of the way. It does make you wonder what kinds of concessions Nokia had to make to secure that support, given that France at least nominally will be losing a major name. If the concessions involved keeping Alcatel's operations in France relatively intact, that will more than likely diminish any potential cost savings.
MordyK
MordyK
4/15/2015 | 2:36:16 PM
Re: Beware the tar pit
My main concern would be the French government meddling, although I'd hazard to guess that they've been consulted and are more realistic about ALu than the last time around.

Standard regulatory issues should be minimal as there's little overlap and they will merely be consolidating the 3 & 4 spots to create a better alternative vendor as well as a better competitor to Huawei.

Frankly I'm surprised Samsung hasn't put their hand in the mix here...
mendyk
mendyk
4/15/2015 | 11:53:30 AM
Beware the tar pit
One of the biggest challenges here has little to do with how the two entities match up. It's how long the approval process is likely to take. Things are changing very quickly. A 12- to 24-month vetting process will put the new giant in a very deep hole.
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