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IN PHOTO: A woman holds a smartphone in front of a screen displaying both Nokia and Alcatel Lucent logos in this photo illustration in Paris, April 14, 2015. Nokia Oyj is in talks to buy Alcatel-Lucent, a deal that could create a European telecoms equipment group worth over 40 billion euros ($42 billion), and cut costs at two of the industry's weaker players. REUTERS/Benoit Tessier

Nokia announced on Wednesday that it was going to buy Alcatel-Lucent for $21.8bn. The collaboration is expected to “create an innovation leader in next generation technology and services for an IP connected world.”

Both companies entered into a memorandum of understanding which will allow Nokia to make an offer to Alcatel-Lucent equity securities through a public exchange offer in France and in the United States. Nokia will now hold 0.55 of every Alcatel-Lucent share.

The Board of Directors of each company approved the terms of the proposed transaction which would, nevertheless, be subject to the approval by Nokia’s shareholders. It will also depend on receipt of regulatory approvals, completion of relevant works council consultations and other customary conditions.

The combined company is expected to bring in financial benefits for shareholders of both Nokia and Alcatel-Lucent. It will target around EUR 900 million of operating cost synergies that is expected to be achieved on a full year basis in 2019. The operating cost synergies will create a long-term structural cost advantage.

The combined company is expected to see a “reduction of various overhead costs in real estate, manufacturing and supply-chain, information technology, and overall general and administrative expenses, including redundant public company costs.” It will also have “organizational streamlining, rationalisation of overlapping products and services, central functions, and regional and sales organizations.”

Nokia’s offer to Alcatel-Lucent values the French company at EUR 15.6 billion on a fully diluted basis. Alcatel-Lucent shareholders are going to own 33.5 percent of the fully diluted share capital of the combined company. Nokia shareholders, on the other hand, will own 66.5 percent, assuming full acceptance of the public exchange offer.

Alcatel-Lucent CEO Michel Combes said that he was proud that the joined forces of Nokia and Alcatel-Lucent were ready to accelerate our strategic vision. He said that it would give his company the financial strength and critical scale needed to achieve its transformation.

It will also help the company invest in and develop the next generation of network technology. “A combination of Nokia and Alcatel-Lucent will offer a unique opportunity to create a European champion and global leader in ultra-broadband, IP networking and cloud applications,” Combes said.

Contact the writer: s.mukhopadhyay@ibtimes.com.au

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