Nokia is in talks to buy American-French Alcatel-Lucent in a deal that could create a European telecoms equipment group worth over €40bn (£29bn). Both companies announced, that there could be “no certainty at this stage” that the discussions would result in a deal.
But a merger for two of the industry’s weaker players would be attractive. This comes a year after Nokia sold its struggling handset business to Microsoft. According to the BBC analysts and investors suggested the deal could face potential opposition from the French government, which has previously said it sees the communications industry as strategic, and is sensitive about any potential job cuts.
Shares in Alcatel were nearly 11% higher at €4.28 in mid-morning trading on the Paris stock exchange on Tuesday morning. Shares in Nokia fell 6% to €7.25 in Helsinki. Nokia is valued at around €29bn, almost three times as much as Alcatel, which had a market capitalisation of €11bn based on Monday’s closing share price.
Some investors expressed scepticism over the merits of the proposed deal. “They are two of the weaker players in the industry,” said Clairinvest fund manager Ion-Marc Valahu.
“They could come up with some cost cuts, but just because you combine one weak player with another weak player does not necessarily mean that you will end up with a stronger player.”
When Nokia sold its mobile phones business to Microsoft, it seemed like a sad end to the story of what had just a few years earlier been Europe’s leading technology superpower.
But the dull old telecoms equipment business left in Finland has turned out some rather exciting returns for loyal investors, who’ve seen their shares double in value over the last two years. Nokia has cut costs and has even started making new devices, with a tablet aimed at the Chinese market.
A merger with Alcatel Lucent, another telecoms maker fallen on hard times, might not appear an obvious winner. But together, the two firms would hope to provide real competition to Sweden’s Ericsson and, in particular, China’s Huawei, which has grabbed a big share of the market as 4G networks are rolled out.