Report: Nokia's cash balance clears way for Alcatel-Lucent buy

As Nokia presented what is likely to be one of its last lineups of new Lumia devices including its first tablet and a new "phablet" before the manufacturer sells its devices and services business to partner Microsoft, rumours persist that the Finnish company could make use of this new influx of cash to buy the mobile unit of struggling vendor Alcatel-Lucent, whose future looks more uncertain by the day.

A report from Bloomberg claimed that Nokia's sale of the handset business for €5.44 billion ($7.5 billion) next year will increase the company's cash balance to more than €14 billion and would easily be enough to finance an acquisition of Alcatel-Lucent's wireless business for up to an estimated €2 billion.

"This deal makes complete sense," Sami Sarkamies, a Helsinki-based analyst at Nordea Bank, told Bloomberg. "Nokia will have the financial flexibility to do this kind of deal and Alcatel needs to slim down. There is a relatively high likelihood of this deal happening."

Citing unidentified sources, Bloomberg said Nokia has evaluated options including a combination with Alcatel-Lucent's mobile networks business.

The "new" Nokia after the sale of the devices business will consist of Nokia Solutions and Networks (NSN)--which competes directly with Alcatel-Lucent and other rivals such as Ericsson, Huawei, ZTE and Samsung Electronics--its HERE mapping and location business and a unit focused on advanced technologies and research.

Nokia may also face competition to buy Alcatel-Lucent from its network rivals, Sarkamies suggests, and would have to move fast if it wants to secure a deal. However, Bloomberg noted that both Samsung and Ericsson have rejected the likelihood of an acquisition of the Franco-American vendor.

"Alcatel-Lucent's wireless business would be a good fit for Nokia and a deal definitely makes sense on paper, though execution would likely be tricky," Sebastien Sztabowicz, a Paris-based analyst at Kepler Cheuvreux, also told Bloomberg.

One thing is certain: Alcatel-Lucent is in dire straits and its CEO Michel Combes has already warned that the company could "disappear" if its latest turnaround plan, the Shift Plan, does not achieve its goals of cutting costs and restructuring the company to focus on high-speed broadband and IP networking. The company has already announced further job cuts of 10,000 people worldwide, but is facing opposition by the French government to its plans to cut 900 jobs and close sites in France.

Meanwhile, Reuters reports that billionaire investor Daniel Loeb has taken a position in Nokia, saying the Finnish company is currently inexpensive and is poised to return a lot of cash to investors. Loeb said the "new" Nokia to return a "meaningful portion of the excess" cash on hand to investors.

For more:
- see this Bloomberg article
- see this Reuters article

Related Articles:
Alcatel-Lucent's Combes: 'This company could disappear'
France may try to block Alcatel-Lucent job cuts
Alcatel-Lucent to axe another 10,000 jobs in reorganization plan
Alcatel-Lucent's Shift strategy targets a virtualized future
Reports: Nokia's board considering NSN deal with Alcatel-Lucent

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