Nokia: Merger with Alcatel Can Unlock Great Value
Nokia has been making a lot of progress over the last few months, which explains why the stock has appreciated this year despite the correction. In its latest reported quarter, Nokia shared earnings per share of EUR0.09, EUR0.02 more than the analyst estimate of EUR0.07. Revenue for the quarter came in at EUR3.3 billion compared to consensus estimate of EUR4 billion.
Ericsson and Huawei have dominated Nokia for a long period of time, but worldwide telecom-equipment market is perhaps one of the most brutally competitive markets in the technology segment.
On September 5, the company proclaimed that it has successfully acquired more than 76% shares of Alcatel-Lucent. For occurrence, as per the deal’s term, it was mandatory for the company to gain control over only the majority of Alcatel’s owned securities in order to validate the deal.
Moreover, both the companies had previously gained regulatory permission from European and U.S. authorities, but the only problem for the deal to complete was the regulatory permission from French regulators. However, this month French regulators removed the final regulatory obstacle that could possibly loom the merger.
This step can have insipid effect on Nokia’s earnings per share, as its bottom-line now has to be distributed among a larger number of outstanding shares. Yet, when talking about valuable acquisition, the additional earnings from the acquired company more than pay off for the prolonged share count.
Nokia strategizes to decrease the joint entity’s operating cost by around EUR900 million by 2019, and cut interest expenses by about EUR200 million. Heading towards the opportunity phase of the deal, Nokia anticipates that combined unit and its latest competitive standpoint will permit the company to grow its addressable market by approximately 50 percent.
The deal with Alcatel can potentially unlock great value for Nokia investors in the long-run, which is why I think the stock will continue outperforming the market.
Nokia’s merger with Alcatel will open op great opportunities for the company and will ultimately unlock great value for the stock holders. Great synergies with Alcatel and the overall growth potential makes Nokia a buy even in the current environment.
Published on Jan 25, 2016By Akshansh Gandhi