Nokia Solutions and Networks is deep in negotiations to buy Alcatel-Lucent in a move that would create a significant networking player that could push back at the growth by Ericsson and Huawei Technologies in Europe and Cisco Systems' dominance in the United States, as well as make inroads into the important China market.
Both companies in a brief statement released April 14 said they are in "advanced discussions with respect to a potential full combination, which would take the form of a public exchange offer by Nokia for Alcatel-Lucent." There were no details about a price or timetable, and the companies noted that "there can be no certainty at this stage that these discussions will result in any agreement or transaction."
The announcement is the latest step in a potential deal that has been talked about since at least late 2013, after Nokia bought out Siemens' half of the companies' joint networking venture and had agreed to sell its troubled handset business to Microsoft. Speculation has continued since, driven by the idea of the two companies creating a single entity with a $40 billion valuation and combined 2014 revenues of more than $27.6 billion.
By comparison, Ericsson has revenues of about $26.8 billion last year.
Nokia and Alcatel-Lucent have traveled difficult roads to get to this point. Finland-based Nokia at one point was the world's largest mobile phone maker, but quickly lost ground to Apple and its iPhone and the rapidly growing number of smartphones running Google's Android mobile operating system. Nokia in 2014 closed a $7 billion deal to sell its mobile handset business to Microsoft, a move that allowed it to focus on the increasingly competitive wireless networking business.
The deal to buy Siemens' share of Nokia Siemens Networks gave Nokia control of the entire business, which was renamed Nokia Solutions and Networks (keeping the same NSN acronym). Soon after, reports about the Nokia board of directors' interest in Alcatel-Lucent surfaced.
For its part, Alcatel-Lucent—which also runs the storied Bell Labs and has spun off a company, Nuage, in the software-defined networking (SDN) space—seemingly has been undergoing constant restructuring since the 2006 merger of Alcatel and Lucent Technologies. The most recent reorganization is what officials call the Shift Plan, which was initiated in 2013 under CEO Michael Combes. Under the Shift Plan, the company has sold off various assets—including its Alcatel-Lucent Enterprise business last year—and cut its workforce by more than 10,000 in an effort to cut as much as $1.36 billion in expenses by the end of this year.
Also as part of the plan, the French company has shifted its efforts away from being a general telecommunications equipment vendor to focusing on such high-growth areas as IP networking and ultra-broadband access. Combes has said the Shift Plan is the company's sixth restructuring effort since its creation.
In a conference call in February to discuss fourth-quarter 2014 numbers, Combes said the company has reached 70 percent of its savings target. Also during the call, the CEO said he was pleased with the company's direction, noting that revenues for the year were flat.
"We are well on our way," he said, according to a transcript on Seeking Alpha, adding that this year a focus will be on profitable growth. "This will be a major focus in 2015. We have made inroads as I have mentioned already in 2014 and have collected encouraging results. … We will not stop there and we intend to accelerate in '15."
A deal involving Nokia buying Alcatel-Lucent would have to clear some hurdles in France, where president Francois Hollande was scheduled to meet with the CEOs of both companies April 14, according to The Wall Street Journal.
The news organization reported that a French government official said any deal would need to ensure that France would continue to have an influence on the new company in such areas as employment, activity at Alcatel-Lucent's sites in the country and the telecommunications industry in France.