A day after announcing advanced talks and meeting with top French politicians, Nokia (NOK) said it would buy Alcatel-Lucent (ALU) in a €15.6 billion ($16.6 billion), all-share takeover that has the blessing of the French government and will create a European telecommunications-network equipment heavyweight.
Nokia would pay 0.55 of a share for every Alcatel-Lucent share in the deal, a 34% premium to its undisturbed closing price that would give 33.5% of the enlarged company to Alcatel-Lucent investors. Alcatel-Lucent shares slipped 12.4%, or €0.556, to €3.925 in mid-day Paris trading, eroding Tuesday's 16% gain. Nokia stock rose €0.11 to €7.60.
Nokia has been courting Alcatel-Lucent for years and managed to persuade Alcatel-Lucent CEO Michel Combes that a fusion will allow the target to better address financial pressures and competition from China's Huawei Technologies Co. Ltd. and Ericsson AB, of Sweden.
Analysts and investors had feared concerns that the deal would cost French job could stymie the much-discussed deal, but both Combes and Nokia President and CEO Rajeev Suri allayed those fears during a Wednesday press conference.
French President Francois Hollande and Economy Minister Emmanuel Macron "both welcomed the emergence of this European champion that will fuel and strengthen digital technology in Europe," Alcatel's Combes said. He and Suri met with the politicians on Tuesday.
"Both the president and the minister of the economy have understood the importance of this ... not all European champions can be French," Combes said.
The partners expect the deal to close in the first half of next year and said they are targeting €900 million in operating cost synergies by 2019.
Nokia's Suri as well as chairman Risto Siilasmaas will retain their positions in the enlarged Nokia, which will also keep its Espoo, Finland, headquarters. Alcatel-Lucent will appoint three of the combined company's 9 or 10 board members.
Nokia said it will rely on the former Alcatel-Lucent as well as the target's French sites for research and development and pledged to keep French layoffs to those agreed last year in a restructuring package hammered out with unions and the French government.
The deal will require regulatory approval in at least nine jurisdictions, including China, the U.S. and Europe, the executives said. They also called on European watchdogs to support the creation of a European champion that can compete internationally despite potential rivalry issues within Europe.
"We have a ton of experience getting these antitrust approvals over time," Suri said. "We understand the process very well. We are doing this from a position of strength. We are doing this after both companies have been through a restructuring themselves."
Despite their swagger during a press conference, in which Suri took potshots at Sweden's Ericsson for lacking in some areas, both Suri and Combes have fought to make similar cross-border mergers successful.
Nokia in 2013 bought Siemens out of their 50-50 network equipment venture for €1.7 billion just a month before peddling its ailing handset division to Microsoft (MSFT) for €5.44 billion. And while the trimmer Nokia slowly returned to health, Alcatel-Lucent only recently began to recover from its $13.4 billion merger with Lucent Technologies in 2006.
That trans-Atlantic deal aimed to create an international telecommunications equipment powerhouse. Instead, it left Alcatel-Lucent spread too thin and overexposed to low-margin businesses. Still, Lucent's history as Bell Labs in the U.S. will help Nokia gain traction in the world's biggest economy.
Nokia said Wednesday it would also review a sale of its Here mapping division amid reports it had already contacted German carmakers, car service Uber Technologies and private equity funds. The unit could be worth as much as €4.5 billion, according to Citigroup analysts.
The deal with Alcatel-Lucent would combine the French company's fixed-network expertise and strong U.S. position with Nokia's cellular network focus just as more companies, such as Google (GOOG) and Amazon (AMZN), toy with establishing their own networks and phone companies begin planning next generation, or 5G, networks.
Last year, the pair had combined sales of €25.9 billion, leading to operating profit of €2.3 billion.
"The risk we all faced collectively is that only Chinese players drive 5G technology forward, because European players aren't solid enough," French Economy Minister Macron told reporters in Paris on Tuesday.
-- Written by Andrew Bulkeley