Alcatel-Lucent (ALU) and Nokia today confirmed earlier reports that the two companies are looking to merge.
According to statement, Nokia and ALU are “in advanced discussions with respect to a potential full combination, which would take the form of a public exchange offer by Nokia for Alcatel-Lucent.” The statement cautioned that there could “be no certainty at this stage that these discussions will result in any agreement or transaction.”
A merger of Nokia and ALU would create a company with combined revenues of approximately $27.6 billion last year. That would put the new company on par with Swedish telecoms equipment giant Ericsson, which reported full-year 2014 revenues of approximately $26.7 billion.
Mark Newman, chief research officer for Ovum, called a possible merger of the two companies “logical,” citing Alcatel’s strengths in the fixed network business, and Nokia’s complimentary mobile-only strategy.
Newman notes there are also risks to such a deal.
“A full merger would plunge both businesses back into a period of introspection and restructuring,” Newman said. “It would create significant duplication in areas such as mobile broadband and small cells. Maintaining two different product portfolios and servicing existing customers would counteract the benefits of increased scale.”
But Newman concedes that Nokia may see considerable benefits from the scale of the resulting business. “The acquisition of Alcatel-Lucent’s assets will propel Nokia to a tier-1 position and will open doors to much bigger, end-to-end contracts that have largely been exclusive to Ericsson and Huawei,” he wrote.
Numerous reports have indicated that the deal would involve some form of acquisition of ALU by Nokia. The Wall Street Journal points out that any deal would likely need to leave ALU with enough control to satisfy French regulators.
In an emailed statement, Ericsson acknowledged having seen reports about ongoing discussions but declined to comment further on the matter.