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Nokia AlcaLu deal puts pressure on Ericsson

Merger puts pressure on Ericsson to step up its wired and optical portfolio

With the recent $16.5 billion merger of Nokia and Alcatel-Lucent, telecom industry watchers are speculating that Ericsson and Juniper Networks (JNPR) could soon be making merger news.

The pending acquisition of Alcatel-Lucent would give Nokia major reach into both the wireless and wired ecosystems.

Analyst Mike Genovese of MKM Partners told Bloomberg Business that telecom “tends to be a copycat industry.”

“We’re entering a period in the industry where a lot of deals could happen,” he said in the interview. “Nokia and Alcatel getting together will put pressure on Ericsson to get into wireline and optical, too.”

Genovese speculated that an Ericsson bid on Juniper, which has a market value of more than $9 billion, would broaden the Swedish powerhouse’s IP router portfolio.

Similarly, Genovese said Ericsson could look to Ciena to add optical transport solutions to its product offerings.

Catharine Trebnick of Dougherty & Co. told Barron’s that “Ciena is the more likely candidate as a result of the strategic partnership which was announced Feb. 20, 2014.”

She continued her analysis: “Our discussion with J. Moylan, CFO of Ciena at the OFC conference suggested the partnership is on track. Ciena is currently generating revenue from three of the four jointly announced optical customers. The merger is positive for Ciena.”

Trebnick continued that it may take a year or two to “work through product overlaps. We believe the timing is less than satisfactory for Nokia Corporation looking to gain market share in the optical market segment as many carriers and cloud providers are upgrading to 100G.”

Here’s a recap of the known tenets of the pending Nokia Alcatel-Lucent deal:

  • The companies have signed a memorandum of understanding for an all-share transaction.
  • Nokia will offer in France and the United States, .55 Nokia share for every Alcatel-Lucent share with a total value of $16.5 billion based on the $8.26 closing share price on April 13.
  • Both companies’ boards of directors have approved the terms of the proposed transaction.
  • The deal is expected to close as soon as the first half of 2016.
  • Closing is subject to approval by Nokia shareholders, works council consultations and regulatory approvals.
  • Rajeev Suri continues as CEO of the new company.
  • Risto Siilasmaa continues as chairman of the new company.
  • The new board of directors will have 9 or 10 members with three to come from Alcatel-Lucent.
  • Headquarters remains in Finland with strategic business and research and development locations in France, Germany, China and the U.S.

ABOUT AUTHOR

Sean Kinney, Editor in Chief
Sean Kinney, Editor in Chief
Sean focuses on multiple subject areas including 5G, Open RAN, hybrid cloud, edge computing, and Industry 4.0. He also hosts Arden Media's podcast Will 5G Change the World? Prior to his work at RCR, Sean studied journalism and literature at the University of Mississippi then spent six years based in Key West, Florida, working as a reporter for the Miami Herald Media Company. He currently lives in Fayetteville, Arkansas.