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In: Finance

On January 14 2016, Nokia and Alcatel-Lucent celebrated their first day of combined operations. A couple...

On January 14 2016, Nokia and Alcatel-Lucent celebrated their first day of combined operations. A couple of years earlier, Nokia and Microsoft formed a partnership, which did not work well.

Why did Nokia and Alcatel-Lucent merge? Is their merger likely to be successful? What was the impact on the stock price?

Solutions

Expert Solution

A merger is generally done whenever the 2 companies find synergies. These synergies could result either from combined operations, complementary operations, locational access, regulatory access, etc.

In case of Nokia and Alcatel-Lucent, the merger would have resulted in synergies from combined operations and a larger market share. At the time of merger in 2016, Nokia and Alcatel-Lucent were the no. 2 and no. 4 manufacturers of mobile network equipment in terms of market share. Merged operations would have given them economies of scale to combat then, no. 1 player Ericsson's dominance.

While everything seemed good on paper, Alcatel Lucent was a loss making unit and Nokia was expecting to turn the company around under its supervision. Both the companies were struggling in their own position and expected to gain more bargaining power as a combined entity. However, the stock markets did not welcome this news.

The merger news had negative impact on the stock price and Nokia's share price fell down by around 7 %, to its lowest level in 3 years.


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