Nokia Oyj (NOK1V), set to become a manufacturer focusing on wireless networks after the sale of its handset business, is evaluating a linkup with France’s Alcatel-Lucent SA (ALU), two people with knowledge of the matter said.
The Finnish company is considering options including a combination with Alcatel-Lucent’s mobile-phone networks unit, said one of the people, who asked not to be identified because the plans are confidential. No talks are under way, said the people. Alcatel-Lucent jumped 6.3 percent in Paris.
A tie-up with Alcatel-Lucent would help Nokia challenge Ericsson AB, the biggest maker of wireless networks, and faster-growing rival Huawei Technologies Co. Alcatel-Lucent, which is seeking to sell assets and reduce costs, has contracts with Verizon Wireless and AT&T Inc. in the U.S., a market where Nokia’s network business is trailing competition.
“Wireless tie-up makes industrial sense,” Bank of America Merrill Lynch analysts led by Didier Scemama said in a note. A broader linkup between the two companies would result in a “highly complementary portfolio as well as perhaps the biggest patent portfolio in the communications equipment history.”
Alcatel-Lucent jumped 16 cents to close at 2.69 euros in Paris, valuing the company at 6.3 billion euros ($8.5 billion). Nokia was little changed at 4.90 euros in Helsinki. The company has a market value of 18.4 billion euros.
Doug Dawson, a spokesman for Espoo, Finland-based Nokia, and Simon Poulter, an Alcatel-Lucent spokesman, declined to comment. Reuters reported yesterday that Nokia was weighing options including a tie-up with Alcatel-Lucent.
Analysts have speculated about a reshuffle in the network-equipment industry since Nokia this month agreed to sell its mobile-phone business to Microsoft Corp. (MSFT) in a 5.44 billion-euro deal, a transaction the companies expect to complete in the first quarter. Nokia Solutions and Networks, the $18 billion-a-year networks business Nokia fully took over from Siemens AG last month, will account for more than 90 percent of sales at Nokia after the company exits handset making.
“The next logical step for Nokia would be to take over Alcatel’s Mobile Networks business,” Natixis analyst Eric Beaudet said in a note this month. “Such a move would generate considerable synergies for Nokia in terms of technology and geographic positions. This means that Nokia might be prepared to pay market price.”
A sale of the wireless business could generate 3.5 billion euros for Alcatel-Lucent, Beaudet estimates. The company had wireless-gear sales of 3.4 billion euros last year, not including services or software.
Nokia, whose debt is ranked junk by all three major rating companies, had net cash of 4.1 billion euros at the end of June. The company is set to receive cash from Microsoft of 3.79 billion euros for its phone division and 1.65 billion euros for patents once the deal is completed.
Nokia’s networks unit has only just returned to profit after accumulating billions of dollars in operating losses over six years. Under Chief Executive Officer Rajeev Suri, NSN has cut more than 20,000 jobs amid declining sales and intensifying competition with Chinese suppliers Huawei and ZTE Corp.
The cost of insuring Nokia’s debt using five-year credit-default swap contracts rose as much as 17 basis points to 237 basis points today, signaling a deterioration in creditworthiness. The contracts have fallen by 58 percent since the sale agreement with Microsoft.
Nokia, Ericsson and Alcatel-Lucent are now vying for contracts from wireless operators as they upgrade networks using fourth-generation technology to cope with data-hungry tablets and smartphones to browse the Web.
Alcatel-Lucent, led by CEO Michel Combes, has pledged to sell assets to raise 1 billion euros and reduce expenses by another 1 billion euros. The company, which has lost more than $10 billion since it was created through a 2006 merger, is also in talks with more potential research partners which could become Alcatel shareholders. Qualcomm Inc. already agreed to buy a minority stake.
A sale of its wireless unit would leave Alcatel-Lucent to focus on generating revenue from its intellectual property portfolio, made up of more than 30,000 patents, as well as fixed-line broadband-network equipment.
To contact the editor responsible for this story: Kenneth Wong at email@example.com