Nokia’s Alcatel Bid Seen Drawing Fresh U.S. Security Review

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Nokia Oyj will probably have to pass a U.S. national security review before buying Alcatel-Lucent SA, just as Alcatel did almost a decade ago when it agreed to wall off some operations of Lucent Technologies.

The 2006 acquisition, which included Lucent’s Nobel-prize winning Bell Labs research facility, was scrutinized by a U.S. security panel that examines foreign acquisitions of American businesses. The $16.6 billion deal with Nokia will get a fresh review because the companies make technology the government considers sensitive, said several lawyers and advisers who specialize in cross-border transactions.

“There is a strong nexus to national security because it involves the telecommunications sector and Alcatel has security clearance to do work for the U.S. government,” said Farhad Jalinous, an attorney at Kaye Scholer LLP in Washington. Jalinous isn’t involved in the Nokia-Alcatel deal. His comments were echoed by other lawyers who said they couldn’t speak publicly about the issue because they had business conflicts.

Nokia agreed to acquire Alcatel in what would be the largest acquisition yet by the Finnish network-equipment supplier. The combined entity would become the biggest maker of equipment that powers mobile-phone networks, surpassing Sweden’s Ericsson AB and Huawei Technologies Co. of China, according to researcher IDC.

Deals in the telecommunications industry traditionally draw scrutiny from the Committee on Foreign Investment in the U.S., a panel led by the Treasury Department, which reviews foreign acquisitions of U.S. business to protect national security. CFIUS can impose conditions on companies if it determines there are any risks.

Alcatel Chief Executive Officer Michel Combes said on a conference call Wednesday that he’s convinced the bid will get U.S. government approval.

Sensitive Assets

CFIUS cleared Alcatel’s acquisition of Lucent after negotiating a national security agreement with the French company, according to the manufacturer’s annual report. Alcatel agreed to establish a separate subsidiary to perform work for the U.S. government and hold certain “sensitive assets” associated with Lucent’s Bell Labs.

A special security agreement limited Alcatel’s control and influence over the subsidiary and restricted “the flow of certain information,” Alcatel said in the report.

The fact that Alcatel has been through the CFIUS process previously will help a new review if Nokia reaches an agreement to buy the company, according to Jalinous. He expects CFIUS will approve any transaction.