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Nokia looks to complete its makeover with Alcatel-Lucent bid

Finland’s Nokia Oyj (NOK) is in talks to buy French-based Alcatel-Lucent SA (ALU), in a deal that would seal its corporate makeover since the sale of its mobile phone business to Microsoft Corp. in 2013.

Nokia, the world’s dominant maker of handsets in the pre-smartphone era, fell from grace spectacularly after missing the Apple-led (AAPL) smartphone revolution, and had flirted briefly with insolvency, but it has recovered since freeing itself of the handset legacy and concentrating on telecoms infrastructure.

That sector, too, is struggling to keep pace with the global migration to wireless technology, but both companies appear to have put the worst behind them after painful restructurings: Nokia’s shares have tripled in the last two years, while Alcatel-Lucent’s have quadrupled, as the two have started to diversify business away from mobile carriers.

The Finnish-based company reported its first annual rise in revenue in three years last year, but it still lags industry leader Ericsson AB (ERIC) and China’s Huawei. A merger with Alcatel-Lucent could give it the scale that would help its ability to compete with those two.

In a statement Tuesday, Nokia confirmed it is in “advanced discussions with respect to a potential full combination, which would take the form of a public exchange offer by Nokia for Alcatel-Lucent.”

Full takeovers of big French companies are, however, notoriously tricky to pull off. Even partial ones, such as General Electric Co.’s bid for the power business of Alstom SA last year, can become hugely complicated due to government sensitivity about foreign takeovers. A government source told Bloomberg Tuesday that it would want the new company to maintain a ‘strong’ French base.

Moreover, the deal risks creating something akin to Frankenstein’s monster, as both companies are already the product of smaller ones which have been grafted on to one another (Nokia bought Siemens AG out of a long-running joint venture in 2013, while Alcatel merged with the then Lucent Technologies Inc. in 2006).

A full merger between the two would create a company with revenue of around $28 billion, and a value of over $40 billion, on a par with Sweden’s Ericsson AB.

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