Finland's Nokia will tie the knot with Alcatel-Lucent in an all-stock deal that values the French telecom company at 15.6 billion euros ($16.6 billion), the companies said on Wednesday.
"A combination of Nokia and Alcatel-Lucent will offer a unique opportunity to create a European champion and global leader in ultra-broadband, IP networking and cloud applications, " Michel Combes, CEO of Alcatel-Lucent, said in a statement.
Nokia will pay 0.55 share for every share of Alcatel-Lucent, offering shareholders a premium of around 28 percent to the weighted average share price over the past three months, Nokia said.
Alcatel-Lucent shareholders will end up with 33.5 percent of the combined company, which will be headquartered in Finland, while Nokia's shareholders will get the remainder. The combined company will operate under the Nokia brand, while retaining the Bell Labs brand for network-focused businesses.
The companies expect around 900 million euros of operating-cost synergies in 2019 if the deal closes in the first half of next year.
Initially, Nokia was only interested in acquiring Alcatel-Lucent's wireless operations, but Combes told CNBC he was able to convince the Finnish company of the value of the entire operation.
"The industry is moving to 5G," which combines radio and fixed access as well as IP and cloud networks, Combes said.
"If you want to be a winner in the 5G arena, you need to get ownership of those different technologies."
Prior to the deal's confirmation, analysts at Credit Suisse and Citi said purchasing Alcatel-Lucent's wireless unit would be a wise strategic move for Nokia, because of the former's presence in the U.S.
"Alcatel's and Nokia's wireless businesses are a great strategic fit since ALU is as strong in the U.S. as NSN is in Europe and Japan; both have strong positions in China," said Citi in a research note on Tuesday.
While there were concerns that combining the two companies could threaten jobs, particularly in labor-protective France, Nokia said it plans to keep employment in French facilities consistent with Alcatel-Lucent's existing plans.
"We have implemented in the last two years a strong turnaround plan in France, with strong decrease of the employee numbers in France and the close of five out of seven sites," Combes told CNBC.
Additionally, the combined company will expand R&D employment in France, adding several hundred positions, Combes noted.
"There are good skills and capabilities in the country and on top of that we have a tax competitive advantage in France for R&D employment," he said, although he added that some of the two companies' overlapping support functions will be reduced.
The deal may not be the harbinger of more M&A activity in the sector.
"While carrier customers like the idea of buying infrastructure from large global suppliers, it's not obvious to us that amassing scale for the sake of it makes sense for the vendors," analysts at Jefferies said in a note Wednesday before the deal was announced. It doesn't expect a wave of consolidation will follow the announcement.
--Holly Ellyatt and Katy Barnato contributed to this article.
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