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The Finnish telecommunications giant Nokia said on Tuesday that it was in advanced talks to buy Alcatel-Lucent, its French rival, in a deal that could further consolidate the global telecom industry.
A merger would increase pressure on other major telecom manufacturers, including Ericsson of Sweden, which holds the largest market share in the sector. In recent years, a number of Chinese rivals, including Huawei and ZTE, have also become major challengers for new contracts with global carriers, particularly those in Asia.
A potential transaction for parts of Alcatel-Lucent had been rumoured for months, as the French telecom manufacturer sought to sell assets and focus on its more profitable divisions.
The companies' chief executives - Michel Combes of Alcatel-Lucent and Rajeev Suri of Nokia - met Tuesday afternoon with President François Hollande of France at the Élysee Palace, and the initial response from the government, while short of a full endorsement, appeared positive.
Nokia said the companies, which have combined revenues of about $27 billion, were discussing a "potential full combination" that would most likely include Nokia offering its own shares in exchange for shares of Alcatel-Lucent.
Nokia and Alcatel-Lucent had held talks before, though they were paused after the Paris-based telecom manufacturer announced a major overhaul, including 10,000 job cuts, in late 2013.
Last year, Nokia completed the sale of its handset business to Microsoft for roughly $7.2 billion to focus on building equipment used to power cellphone networks by the world's major carriers like AT&T and Vodafone.
"Nokia has the ambitions and they have the cash from the Microsoft sale," said Sylvain Fabre, a telecom analyst at the technology research company Gartner. "A deal could help them compete against the bigger players like Ericsson and Huawei."
Nokia did not say how much it could pay for its French rival. It has a market capitalisation of ^26.6 billion, or about $28 billion, more than double Alcatel-Lucent's market value.
"There can be no certainty at this stage that these discussions will result in any agreement or transaction," Nokia said in a news release.
Nokia shares fell 4.46 per cent in Helsinki on Tuesday, while shares of Alcatel-Lucent jumped 16 per cent in Paris.
Spokesmen for both Nokia and Alcatel-Lucent declined to comment beyond the brief statement.
One key to the eventual success or failure of the talks will be the French government's attitude. Officials in Paris have long seen Alcatel-Lucent, and Alcatel before it, as the champion of the country's telecom sector, deserving of nurturing and support.
While Alcatel-Lucent is incorporated in France, its North American operations, based around the legacy Lucent business in Murray Hill, New Jersey, contributed almost 44 per cent of its 2014 annual revenue of €13.2 billion. Europe was about 22 per cent, and Asia just under 20 per cent.
France's previous economy minister, Arnaud Montebourg, was known for taking a critical view of deals that would lead to French companies passing under foreign control.
This time, the state appears to be encouraging a deal, with Economy Minister Emmanuel Macron telling reporters on Tuesday afternoon that combining the companies "would permit the creation of a European champion to take on Chinese competition," though the world's largest equipment market is currently Ericsson of Sweden.
Macron, speaking to the news media after Hollande's meeting with the company executives, also addressed one of the government's main considerations, saying that he did not expect any jobs to be lost in France.
But Alcatel-Lucent's French unions expressed "concern" with the prospect of a merger, in light of job losses they feared would be inevitable in the combination of companies that each employ more than 50,000 people worldwide. They called on Macron to "be vigilant of the social and industrial consequences, notably on employment in France."
While Alcatel-Lucent has been focused on its overhaul, Nokia has been busy on its own transformation. After Nokia sold its handset and services business to Microsoft, it shifted its focus to its telecom network equipment, mapping and new technology businesses. Nokia generates roughly 85 per cent of its revenue from its telecom networking unit.
Tuesday's announcement follows separate early-stage discussions by Nokia and a number of potential buyers, which have expressed interest in acquiring the Finnish company's mapping business, according to two people with direct knowledge of the matter, who spoke on the condition of anonymity because they were not authorised to speak publicly on the matter.
That business, called Here, competes with the likes of Google Maps to offer digital mapping services on people's cellphones and in sectors like the automotive industry.
That unit has benefited from the push by carriers around the world to upgrade their high-speed mobile and data networks to take advantage of people's seemingly insatiable desire to access online content through their cellphones.
Nokia, based in Espoo, near Helsinki, posted sales of €12.7 billion in 2014 and employs about 61,000 people.
Alcatel-Lucent, based in Boulogne-Billancourt, France, provides a variety of telecommunications equipment, including for networks, broadband connections and cloud computing. It posted revenue of €13.2 billion, or about $14 billion, in 2014 and employs about 52,000 people.
The potential deal with Nokia follows a number of restructuring efforts after Alcatel-Lucent was created in 2006 through the merger of Alcatel of France and Lucent Technologies of the United States. The merged entity has suffered from a number of setbacks, and it has been forced to sell assets and offload thousands of employees to remain competitive.
The need to invest in new technology and the rapid rise of Huawei have created pressure to increase scale to compete globally.
Alcatel and Lucent were each products of more than a century of industry consolidation. Alcatel's forerunner, Compagnie Generale d'Electricite, was formed in 1898 by a French engineer named Pierre Azaria, evolving over the years into France's largest telecom company. Lucent Technologies, which included the Bell Labs, was created from the breakup in the 1980s of the former telephone monopoly AT&T. It was spun off as a separate company by AT&T in 1996.
Nokia, which was founded in 1865 as a wood pulp producer, was once the world's leading cellphone maker. Unable to match the smartphone revolution led by Apple and Samsung, it reoriented itself toward networking gear in 2013 by selling its mobile phone business and acquiring Siemens's share in the Nokia Siemens Networks venture.
©2015 The New York Times News Service
