Nokia CEO Says Alcatel Will Increase its 5G Firepower

November 19, 2015, 4:26 PM UTC
Telecom equipment maker Alcatel-Lucent's Chief Executive Officer Michel Combes (L) and Nokia's Chief Executive Rajeev Suri shake hands during a press conference, on April 15, 2015 in Paris, to formalise the merger of the two companies. Nokia has struck a 15.6-billion-euro deal to buy its rival Alcatel-Lucent to create the world's biggest supplier of mobile phone network equipment. The merger of two companies will produce a European champion able to take on Nokia's Swedish rival Ericsson or fierce Chinese competition. AFP PHOTO / THOMAS (Photo credit should read THOMAS SAMSON/AFP/Getty Images)
Photograph by Thomas Samson/AFP via Getty Images

Nokia’s planned takeover of rival network gear maker Alcatel-Lucent will give it far greater scope to invest in new technologies like 5G mobile equipment while cutting costs, its chief executive said on Wednesday.

Rajeev Suri also told Reuters in an interview that the Finnish company was making rapid progress towards closing the acquisition, originally valued at 15.6 billion euro ($16.62 billion).

The deal coincides with a major new industry investment cycle set to kick off next year to develop the next generation of 5G networks that are expected to start going mainstream around 2020, Suri said.

French-American company Alcatel-Lucent (ALU) spends around 4.7 billion euros on research and development, while Nokia (NOK) spends less than half that. “We have more scale to invest in 5G than we would have alone,” Suri said.

5G equipment will be needed to handle the projected data demands of connected cars and industry, while making cities more secure and enabling new wearable communications devices. Current 4G networks handle mostly phone and computer traffic.

“The next year is the key; this is why the timing of our acquisition is good,” Suri said. In the 4G era, the two separate companies had two different portfolios, but with the merger, it will be able to invest in and market a single 5G product line.

Suri was speaking on the first day of Nokia’s public exchange offer to Alcatel-Lucent investors, for which the company needs a simple majority of more than 50% of shareholders to accept by the closing date of Dec. 23.

Nokia shareholders hold a separate vote on the deal on Dec. 2, clearing the way for it to close some time in the first quarter, the company has said.

“Mentally, we want to hit the ground running,” Suri said. “For us, the deal closes when we get more than 50%” of Alcatel-Lucent shareholders accepting the deal, he said.

Settlement of the offer and the holidays mean that the earliest the deal could close would be after the first week of 2016.

A handful of Alcatel-Lucent investors, including second largest holder Odey Asset Management, had called for better terms after its results earlier this year were markedly better than Nokia’s.

But few expect that to happen, since the deal is structured as a tender offer, requiring only a majority of Alcatel shareholders to be willing to sell. Suri declined to comment on whether other major shareholders were ready to back the deal.

Late last month, the company brought forward its 900 million euro cost-saving target for deal by a year to 2018. Last week it named the combined company’s top 130 executives. Suri said that he plans to have more than 10,000 managers selected from between the two companies by the time the deal closes.

Rapid regulatory approvals, greater clarity on merger integration plans, and a strong financial performance in the past two quarters fuels his confidence. Last month, Nokia also announced plans to return $4.4 billion to shareholders in coming years through dividends and share buybacks.

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