Nokia Corporation NOK has signed a memorandum of understanding ("MoU") with China Huaxin Post & Telecommunication Economy Development Center ("China Huaxin") in order to get a go-ahead from China for the acquisition of Alcatel-Lucent ALU. As per the MoU, Nokia China and Alcatel-Lucent Shanghai Bell ("ASB") will form a new joint venture (JV), to be called Nokia Shanghai Bell.
In the new JV, Nokia is expected to hold 50% plus one share while the rest of the shares will be held by China Huaxin.
In Apr 2015, Nokia Networks had entered into a definitive agreement with Alcatel-Lucent for full acquisition of the latter for a total consideration of euro 15.6 billion (approximately $16.6 billion). Last month, the European Commission (EC) – the telecom regulatory body of the European Union – approved the deal following a Phase 1 review, without enforcing any additional condition.
The EC concluded that the merger will not have any adverse impact on competition as the geographical areas of operations of these two entities are largely different. Even post-merger, a number of strong global competitors will continue to operate in the market.
In July 2015, the U.S. Department of Justice (DOJ) had granted an early termination of the antitrust waiting period for the proposed merger of Nokia and Alcatel-Lucent. This implies that the DOJ is not against the culmination of the deal. The merger has also received the necessary regulatory clearances in Serbia and Brazil.
Several analysts have estimated that the combined Nokia and Alcatel-Lucent entity will command about 35% of the global wireless infrastructure market share, much closer to Ericsson AB’s estimated 40% hold and far ahead of Huawei Technologies Co. Ltd.’s 20% share.
The acquisition of the wireless business of Alcatel-Lucent will significantly strengthen Nokia’s foothold in North America. Top U.S. telecom operators, namely, Verizon Communications Inc. VZ and AT&T Inc. T, are major customers of Alcatel-Lucent. Notably, in 2014, the wireless division of Alcatel-Lucent generated around $5 billion in sales. Of the total, Verizon and AT&T jointly contributed more than 25%. Additionally, Alcatel-Lucent has a strong presence in China while Nokia enjoys considerable dominance in Europe and Asia.
The merged entity can also effectively capitalize on the emerging Internet-of-thing (IoT) platform and command triple-play voice, video and data solutions across the world. The core focus areas will be next-generation 5G wireless technology, IP and software, defined networking, cloud-based solutions, big data analytics, and sensors and imaging.
The full takeover of Alcatel-Lucent by Nokia will create a network solutions behemoth in the industry with a significant global customer base and solid operational efficiencies. Nokia boasts strong technical efficiency in professional managed services and customer experience management, along with a rich portfolio of mobile broadband infrastructure and 4G LTE networks.
Both Nokia and Alcatel-Lucent carry a Zacks Rank #3 (Hold).
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