Nokia Move in China May Help Push Alcatel-Lucent Acquisition

The $16.6 billion deal is moving forward, but French politicians are criticizing the bonuses being paid to outgoing Alcatel-Lucent CEO Combes.

tech business

Nokia's Networks' $16.6 billion takeover of Alcatel-Lucent is pushing forward, though not without a bit of controversy.

The deal, designed to take two networking vendors that are in transition and create a formidable company that can compete with the likes of Ericsson, Cisco Systems and Huawei Technologies, already has received approval from regulators in the United States and Europe, among other places.

Now, in an effort to curry the favor of Chinese officials, Nokia officials have entered into a joint venture with Chinese investment firm China Huaxin to create what will be called Nokia Shanghai Bell. Nokia will hold a 50 percent-plus-one share of the joint venture, which will bring together Nokia's telecommunications infrastructure business in China with Alcatel-Lucent Shanghai Bell, an existing joint venture between Alcatel-Lucent and China Huaxin.

According to a memorandum of understanding (MoU) between Nokia and China Huaxin, the new joint venture will be a boon for both the Chinese telco market and both companies. It also puts the Finland-based Nokia in a strong position to support initiatives under way by the Chinese government—called "Internet Plus"—to drive economic growth by integrating Internet technologies with manufacturing and business efforts, and to help establish stronger links between China and Europe, according to President and CEO Rajeev Suri.

In addition, Suri expects it will ease the approval process for Nokia's acquisition of Alcatel-Lucent.

"With this MoU now in place, we will also work closely with our new partners to make the case for swift approval of the proposed combination between Nokia and Alcatel-Lucent by the appropriate Chinese authorities," he said in a statement.

The acquisition, announced earlier this year after more than two years of on-again, off-again negotiations, will create the world's second-largest network equipment vendor, behind Ericsson. In 2014, the companies combined generated $27.5 billion in sales and $2.45 billion in profits, more than $5 billion in R&D (including money for Alcatel-Lucent's and Nokia's FutureWorks program) and net cash of almost $7.9 billion.

Both vendors have had their share of changes over the past few years, with Nokia ending its networking partnership with Siemens and Alcatel-Lucent going through another of several restructurings since the merger of Alcatel and Lucent in 2006, this one called the Shift Plan.

Since the deal was announced, it was understood that Suri will assume the CEO position of the merged company, with Alcatel-Lucent CEO Michel Combes exiting the business. In August, it was learned that Combes, who engineered the Shift Plan in hopes of streamlining the business and reducing costs, will become chairman of French telco Numericable-SFR and chief operating officer at Altice, an investment arm of billionaire Patrick Drahi and the controlling organization of Numericable-SFR.

However, as part of the buyout, Combes will receive $15.7 million over three years, a figure that reportedly has drawn the ire of both the French government and workers unions. Combes reportedly has refused to give up the bonuses, which he said were not tied to the Nokia deal but instead were paid to him because of how well he did his job as Alcatel-Lucent's top executive.

Combes, who leaves Alcatel-Lucent for his new jobs Sept. 1, told French news organizations that under his watch, Alcatel-Lucent was able to avoid bankruptcy and its share price increased.

However, French politicians and union leaders noted the high unemployment in France—hovering around 10 percent—and stagnant economy; they said that Combes' bonuses look particularly poor given that backdrop. In addition, his Shift Plan, while reviving Alcatel-Lucent's fortunes, also led to job losses for about 10,000 employees.

"In today's world and with the problems people face one needs to have a bit of common sense, proportion and restraint," French Finance Minister Michel Sapin reportedly said on France Info radio Aug. 31. "And in this case Michel Combes hasn't. [He must] try to understand how this looks to others, to the French, and from there take good decisions. He still has time to do so."

Herve Lassale, an official with CFDT, the largest union at Alcatel-Lucent, told French journalists that "employees who saw the amounts announced at the weekend were no doubt sick. They are indecent considering the social problems of recent years."

Editor's note: This story has been changed to note that Nokia is based in Finland.