Nokia in talks to buy French telecom firm
NokiA is in talks to buy smaller telecom equipment maker Alcatel-Lucent, a deal that would combine the industry's two weakest players but could pose challenges in cutting costs and overcoming political opposition.
In a joint announcement, the Finnish and French companies said they were in "advanced discussions" on a "full combination, which would take the form of a public exchange offer by Nokia for Alcatel-Lucent".
The two, which have been seen as a possible combination for the last several years, cautioned that the discussions could still fall apart.
Shares in Alcatel, a group worth about €11bn based on Monday's closing share price, rose 14pc. Shares in Nokia, worth about €29bn, fell as much as 7pc in morning trade before paring back losses to decline 3.8pc in the early afternoon.
The pair are a good fit in terms of products and geographies, and bulking up would help them cut costs as they try to compete with mobile market leader Sweden's Ericsson and low-cost powerhouse China's Huawei.
Nokia would expand its presence in the key United States market where Alcatel-Lucent is a major supplier to operators AT&T and Verizon, and get access to the French firm's fast-growing, profitable Internet routing business.
But the track record of mergers in the industry is spotty, in part because of the difficulties of cutting costs in a R&D intensive business where companies cannot simply drop products that global telecom operators rely on.
The last round, which gave birth to Alcatel-Lucent and combined Nokia's networks business with Siemens about a decade ago, saw both firms destroy value and lose market share as rivals went on the attack while they were busy integrating the businesses.
The French government may also step in to protect jobs in what is seen as a critical sector for the national economy. Nokia chief executive Rajeev Suri and Alcatel-Lucent boss Michel Combes were expected to meet French President Hollande yesterday evening.
A person at the Economy Ministry said the government wanted more information about the rationale behind the deal and whether it could create a European champion, as well as the impact on French employees.
In May last year France beefed up its power to block foreign takeovers, extending a 2005 law on defense and other industries to the telecoms sector along with energy, water, transport, and health.
Alcatel-Lucent has around 6,000 employees in France out of a total of 52,000 worldwide.