Nokia's (NYSE:NOK) board is considering a deal between the company's Nokia Solutions and Networks (NSN) unit and rival Alcatel-Lucent (NYSE:ALU), according to multiple reports.
The reports, from Reuters, Bloomberg and the Wall Street Journal, all cited unnamed sources and all said that no formal talks between the two companies are ongoing. The most likely scenario being bandied about is that Nokia--after it is flush with cash from Microsoft's (NASDAQ:MSFT) proposed $7.2 billion bid to buy Nokia's handset business--could acquire Alcatel-Lucent's wireless unit. One source told Reuters that Nokia held "on again, off again" talks regarding a purchase of Alcatel-Lucent's mobile business as recently as late 2012 and that the two companies could still strike a deal.
Representatives from Nokia, NSN and Alcatel-Lucent declined to comment.
According to the Journal, Nokia's board has discussed "all options" concerning a potential Alcatel-Lucent deal, and the board met last week to discuss the company's long-term strategy. One source told the Journal that Nokia is far from making firm decisions while another said a deal with Alcatel-Lucent is seen as uncertain because a transaction with Alcatel-Lucent carries "large restructuring risks."
"Wireless tie-up makes industrial sense," Bank of America Merrill Lynch analysts led by Didier Scemama wrote in a research note, according to Bloomberg. A broader deal between the two companies would result in a "highly complementary portfolio as well as perhaps the biggest patent portfolio in the communications equipment history."
Once the Microsoft deal is completed, NSN will be by far the largest unit within Nokia and will account for 90 percent of its sales, notes Reuters. Nokia will also still have its HERE location services and mapping division and a unit focused on advanced technologies and research.
A deal for Alcatel-Lucent's mobile division would strengthen NSN's hand in the U.S. market and help it challenge market leader Ericsson (NASDAQ:ERIC). Alcatel-Lucent has traditionally been strong in the United States. A sale of the company's wireless unit would let it focus its fast-growing IP routing and optical business, one source noted to Reuters.
"The next logical step for Nokia would be to take over Alcatel's Mobile Networks business," Natixis analyst Eric Beaudet said in a note this month. "Such a move would generate considerable synergies for Nokia in terms of technology and geographic positions. This means that Nokia might be prepared to pay market price."
However, while a deal may look solid on paper, it would be fraught with difficulties. Alcatel-Lucent is still in the midst of trying to turn around its own business. NSN has shed many units over the past two years to focus on mobile broadband, and while the company has been improving its financial health over the last several quarters, there have been reports that NSN might cut an additional 8,500 jobs.
For more:
- see this Reuters article
- see this Bloomberg article
- see this WSJ article (sub. req.)
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