Telecommunications giants Nokia and Alcatel-Lucent have entered into a memorandum of understanding that will see Nokia make an offer for all of the equity securities issued by Alcatel-Lucent, through a public exchange offer in France and the US, on the basis of 0.55 of a new Nokia share for every one Alcatel-Lucent share.

The companies said in a joint statement on Wednesday that the deal would enable the companies to combine capacity and create an “innovation leader” in next-generation technology and services for an Internet protocol- (IP-) connected world.

The combined company, dubbed the Nokia Corporation, would comprise Alcatel-Lucent’s Bell Labs and Nokia’s FutureWorks, as well as Nokia Technologies, which would remain as a separate entity with a clear focus on licensing and the incubation of new technologies. 

With over 40 000 research and development (R&D) employees and R&D spend of €4.7-billion in 2014, the newly formed group would be in a position to accelerate development of future technologies, including fifth-generation, IP and software-defined networking, cloud, analytics, sensors and imaging.

Nokia chairperson Risto Siilasmaa would be chairperson, while Nokia CEO Rajeev Suri had been named CEO of the combined entity.

The all-share transaction valued Alcatel-Lucent at €15.6-billion on a fully diluted basis, corresponding to a fully diluted premium of 34% and a premium to shareholders of 28% based on Nokia’s unaffected closing share price of €7.77 on April 13.

On a combined basis, the proposed entity would have had net sales of €25.9-billion and an operating profit of €2.3-billion in the 2014 financial year.

“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.

“For all these reasons, I firmly believe that this is the right deal, with the right logic, at the right time,” Suri said in a statement.

Alcatel-Lucent CEO Michel Combes added that the new group would offer a unique opportunity to create a “European champion” and global leader in ultra-broadband, IP networking and cloud applications.

“I am proud that the joined forces of Nokia and Alcatel-Lucent are ready to accelerate our strategic vision, giving us the financial strength and critical scale needed to achieve our transformation and invest in and develop the next generation of network technology,” he said.

Each company’s board of directors had approved the terms of the proposed transaction, which was expected to close in the first half of next year, but the deal remained subject to approval by Nokia’s shareholders, completion of relevant works council consultations, receipt of regulatory approvals and other customary conditions.