Alcatel-Lucent Sales, Earnings Rise Amid Takeover by Nokia

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Alcatel-Lucent SA reported rising revenue and earnings amid higher software sales, three weeks after agreeing to be bought by rival Nokia Oyj in a $17.5 billion deal. Both stocks rose.

Adjusted operating profit more than doubled to 82 million euros ($93 million), Paris-based Alcatel-Lucent said Thursday. Sales rose 9 percent to 3.24 billion euros, topping the 3.01 billion-euro average of analysts’ estimate.

Last week, Nokia reported quarterly profitability at its networks business that missed estimates as it competes with other equipment makers for contracts with phone carriers. By buying Alcatel-Lucent, Nokia is creating a vendor surpassing Ericsson AB and Huawei Technologies Co. in wireless-infrastructure revenue, while seeking cost savings.

“Alcatel-Lucent reported a fine set of results compared to peers,” Alexander Peterc, an analyst at Exane BNP Paribas, wrote in a note. “Nokia shareholders got a pretty good deal on the basis of this first-quarter operating performance divergence.”

Alcatel-Lucent investors will receive 0.55 Nokia shares for each stock they own. Shares of Alcatel-Lucent rose 1.1 percent to 3.25 euros at 9:24 a.m. in Paris. Nokia shares added 1.8 percent to 5.82 euros in Helsinki. At current price, the deal values Alcatel-Lucent stock at 3.20 euros, compared with 4.12 euros at the time of the announcement.

Combining Assets

Michel Combes, the Alcatel-Lucent chief executive officer who is reaching the end of his turnaround plan at the company in 2015, said his deal with Nokia isn’t based on a single quarter’s performance.

Nokia and Alcatel-Lucent have each cut jobs and refocused business on more lucrative contracts in recent years. The companies have said that combining assets is the best way to create a European player that can compete in the long run in an industry that faces billions of euros in investments to connect millions of intelligent machines that haven’t been invented yet.

“Our agreement with Nokia doesn’t depend on a single quarter -- it’s based on long-term industrial trends,” Combes said on a conference call with reporters. “There’s no reason for any change to the deal.”

Combes reiterated Alcatel’s 2015 financial targets, which he said are the basis for the Nokia transaction. The Paris-based company’s quarterly gross margin expanded to 34.6 percent, compared with 33.1 percent that analysts had predicted.

Nokia Chief Executive Officer Rajeev Suri, who will run the enlarged company, has forecast he’ll close the deal in the first half of next year. First-quarter “weakness” doesn’t put the Alcatel-Lucent transaction at risk, Suri said this week.

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