What the $16.6 Billion Nokia Merger Means for Investors Today

A $16.6 billion Nokia merger plan was announced today as the Finnish wireless-equipment specialist has begun an exchange offer for all the outstanding shares of rival Alcatel-Lucent SA (NYSE ADR: ALU).

With the launch of this public exchange offer, Nokia Corp. (NYSE ADR: NOK) enters the final phase of its proposed merger with Alcatel-Lucent. The Nokia merger, first announced in April, has been approved by the boards of both companies.

According to terms offered in April, 0.55 newly issued ordinary shares of Nokia will be exchanged for each ordinary share of ALU.

nokiaNokia needs a simple majority of more than 50% of Alcatel-Lucent shareholders to accept by Dec. 23.

If enough Alcatel-Lucent shareholders tender their shares, the Nokia merger depends only on Nokia shareholders approving the deal. Nokia shareholders will hold a separate vote on the Nokia merger on Dec. 2.

Nokia is expected to win enough tendered shares and votes to close the deal in Q1 2016.

The Nokia merger should allow the company to cut costs. But most importantly, the merger gives the combined company far greater scope to invest in new technologies like 5G mobile equipment...

Why the $16.6 Billion Nokia Merger Is Happening

You see, the Nokia merger coincides with a major new industry investment cycle...

The investment cycle is the development of the next generation of 5G networks. Development should launch in 2016, and they are expected to start going mainstream around 2020, according to Nokia.

Alcatel-Lucent has already spent roughly 4.7 billion euros on research and development. Nokia has spent less than half that amount. By merging, Nokia has much more scale to invest in 5G.

And that's key...

5G equipment will be needed to handle the mounting data demands of connected cars, wearables, and the Internet of Things (IoT). 5G equipment will also help make cities more secure by enabling communications devices.

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Currently, 4G networks handle mostly phone and computer traffic.

The goal of the Nokia merger is to create a one-stop shop for telecom companies and Internet service providers as it faces heightened competition from new players.

Nokia has been looking to diversify its revenue stream beyond its core customers, which are largely telecom operators.

Plans are to tap large companies outside that sector, such as airlines, oil companies, auto makers, and police and emergency services. All are searching for new hardware and software that will help them with everything from better connecting their operations to enabling real-time emergency responses.

Nokia is also looking to reward shareholders.

Last month, Nokia outlined a 900 million euro cost-saving target by 2018. It also announced plans to return some $4.4 billion to shareholders in the coming years via dividends and share buybacks.

At $7.26, Nokia shares are down 7.6% year to date. ALU shares, at $3.94, are up 11.1% so far this year. Following the news of the Nokia merger, both stocks were flat today.

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