Nokia Corporation (ADR) (NYSE:NOK) is in talks to buy France’s Alcatel–Lucent SA (ADR) (NYSE:ALU). The move is seen as a move to create a European telecommunications equipment giant that could spur a new wave of consolidation.
The two companies released a statement that they were in advanced talks over a complete merger of their business. Nokia would offer a share exchange for control of Alcatel-Lucent. According to sources, the deal could happen as early as this week.
The tie-up will create a firm with over 100,000 employees and over $27 billion in revenue. The deal could make a firm that might rival industry leader Ericsson (ADR) (NASDAQ:ERIC). The merger will also give the company more research power and a bigger tech arsenal in its competition against Chinese telecom giant Huawei. The sentiment was shared by French Economy Minister Emmanuel Macron, who said that the deal could compete with Huawei and Chinese champions.
The merger talks come in the backdrop of disruption telecom equipment business that has been recovering from damages done by the Internet and price wars with other companies especially Huawei.
Industry executives expect a new set of communication technologies to a more closely knit network gear. They expect specialized telecom equipment with software running on inexpensive computers.
The development could make way for newer players but might also benefit firms with broad portfolios and deep client lists. Smaller routing firms like Juniper Networks, Inc. (NYSE:JNPR) might target for acquisition.
Nokia Corporation (ADR) (NYSE:NOK) has around 17% share of the wireless network globally compared to Ericsson’s 30% and Huawei’s 20%. Alcatel has a market share of 10%.
Huawei has been trying to make inroads in the European market by undercutting firms like Alcatel-Lucent. Successive French governments have tried to nurse domestic industries to give them an edge in global trade. The French government has been trying to keep foreign buyers at bay; however, it has little leeway to block international bidders thus making transnational acquisition of its companies unavoidable.