Finnish telecom equipment maker Nokia is in advanced talks to acquire Alcatel-Lucent’s mobile networks unit to strengthen its telecommunications-equipment business especially in the United States and China.
Both companies provide equipment, infrastructure and support to the telecommunications industry. The firms confirmed Tuesday that they are in advanced discussions about the agreement, but warned any potential deal could still fall through.
Nokia said the companies, which have combined income of about $27 billion would create a global networking giant and give them more clout when competing with major rivals like China's Huawei Technologies and Sweden's Ericsson.
Paris-based telecom equipment maker Alcatel’s wireless business unit generated sales of nearly 4.7 billion euros (3 billion pounds) in 2014, or about one-third of the group total, according to reports.
It is also reported that the deal would be closely monitored by French government, as Alcatel is considered a strategic business. The French economy ministry refused to comment.
Alcatel has a workforce of 52,000, while Nokia stands at 62,000.
Nokia was considering selling its HERE maps business, which in 2014 had net sales of around 969 million euros to fund the acquisition. The unit has seen interest from other companies and private equity suitors, according to reports.
Analysts have found little symbiosis between the division and Nokia's mainstay network gear business, and Nokia has appointed a financial adviser to explore the possibility of a sale.
Shares of the two companies surged on Monday as analysts welcomed a possible sale of the Nokia unit as a likely progenitor to integration of Alcatel's wireless business.
Alcatel and Nokia have held talks in the past before Nokia sold its ailing handset business to Microsoft Corp a year ago, leaving the Finnish company to focus on developing the networks business. The meetings between the two companies for a possible merger had increased since January.
Michel Combes, Alcatel Chief Executive has expressed confidence in his aim of achieving positive free cash flow by the end of this year.
Combes has conducted an assertive restructuring plan including laying off 10,000 employees, sales of assets worth about 600 million euros, and raising capital by 1 billion euros to boost finances.
In addition to Nokia, Alcatel competes with Sweden's Ericsson and China's Huawei. The company has not gained regular profit ever since it was founded in 2006 because it is smaller in the mobile segment compared to competitors and faces tough competition from Chinese vendors.