Nokia says in talks to buy Alcatel-Lucent

The deal could create a European telecoms equipment group worth over 40 billion euros ($42 billion)

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.

In a joint announcement, the Finnish and French companies said there could be "no certainty at this stage that these discussions will result in any agreement or transaction."

Analysts and investors also flagged potential opposition from the French government, which has said in the past it sees the communications industry as strategic, and is sensitive about the job cuts that often go with cost-saving takeover deals. The French Economy Ministry had no immediate comment.

Nevertheless shares in Alcatel, a group worth about 11 billion euros based on Monday's closing share price, rose 14% on Tuesday morning. Shares in Nokia, worth about 29 billion euros before Tuesday's announcement, dropped 6%.

The statement came in reaction to media reports that the two had revived tie-up talks that have been on and off for years in an industry that is consolidating.

A year ago, Nokia sold its struggling handset business to Microsoft Corp. This week's media reports were focused on the idea that Nokia may buy France-based Alcatel's mobile networks arm.

Clairinvest fund manager Ion-Marc Valahu expressed scepticism over the merits of the proposed deal.

"They are two of the weaker players in the industry. 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."