On April 15, Nokia Corporation (ADR) (NYSE:NOK) announced it will be acquiring Alcatel Lucent SA (ADR) (NYSE:ALU) in an all-stock deal valued at $16.6 billion, or 15.6 billion euros. The merger will “create an innovation leader in next generation technology and services for an IP connected world.” The deal is expected to close in the first half of 2016.
Alcatel-Lucent, a French-based telecommunications equipment company, is most known for its research and development department, Bell Labs. Nokia is looking to Bell Labs to lead innovation in the merger. Though the combined company will be based in Finland and will be known as Nokia Corporation, Bell Labs will retain its name.
As a merged company, Nokia will be the number 2 global mobile telecommunications equipment company behind Sweden’s Ericcson. Alcatel-Lucent is a European leader in IP networking and cloud applications. Nokia CEO Rajeev Suri pointed to Nokia’s and Alcatel-Lucent’s complementary technologies and commented that Nokia’s comprehensive portfolio will enable a transition to the Internet of Things and to the cloud. Suri added, “Together, we expect to have the scale to lead in every area in which we choose to compete, drive profitable growth, meet the needs of global customers, develop new technologies, build on our successful intellectual property licensing, and create value for our shareholders.”
According to Smarter Analyst, Michael Walkley of Canaccord Genuity maintained a Buy rating on Nokia though reduced his price target from $12 to $11. In response to Nokia’s acquisition of Alcatel-Lucent, Walkley commented that the “combination has many strategic long-term merits” but believes “Nokia shares represent greater execution risks and anticipate the shares could remain more range-bound near term as investors focus on the milestones associated with closing the deal.” Walkley concluded, “The combination of Nokia and Alcatel-Lucent creates a top one or two supplier of LTE wireless infrastructure, fixed broadband, cloud/core, services, and IP routing solutions. It also positions the combined company as the leading LTE RAN supplier with roughly 30% market share and provides Nokia with stronger market share in the higher-margin North America market.”
Michael Walkley has a 70% overall success rate recommending stocks with a +24.4% average return per recommendation.
Separately on April 16, analyst Ehud Gelblum of Citigroup downgraded Nokia from Buy to Neutral. Regarding the acquisition, Gelblum believes “Nokia would have been better off acquiring just the Wireless assets but were forced to acquire the entire company possibly leading to what we believe was a low purchase price.” Consequently, Gelblum believes Nokia will encounter difficulties managing all of Alcatel’s operations, making it hard for Nokia to meet earnings targets. Furthermore, Gelblum would have favored a partly-cash deal due to low interest rates.
Ehud Gelblum has rated Nokia 4 times since December 2013, earning a 100% success rate recommending the stock with a +9.1% average return per Nokia recommendation. However, Gelblum has only a 34% overall success rate recommending stocks with merely a 1% average return per rating.
On average, the top analyst consensus for Nokia on TipRanks is Hold.