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Sunday, November 8, 
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Dealwatch: Nokia-Siemens

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062006_siemens_nokia.jpgLooking to compete with the world's largest network equipment maker market leader—LM Ericsson—Nokia and Siemens announced Monday, June 19 they would merge their mobile and fixed-line networking equipment businesses in a deal valued at $31.5 billion. The proposed union would create the No. 3 network gear dealer behind Ericsson and No. 2 Lucent-Alcatel, which announced its merger only three months ago.

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WHAT THEY DO

The network equipment sector creates the fiber optic cables, routers and wireless beaconsused by the communications networks of large phone carriers such as Verizon and Cingular.

BATTLING FOR A SHRINKING PIE

So, why merge?

  • The competition for business has become so fierce that survival dictates joining forces. Alcatel of France acquired cross-Atlantic rival Lucent on April 2, 2006 for $13.4 billion. The deal is currently going through a tedious approval process. The proposed union, if approved, would create the second-largest network equipment maker.
  • The telecommunication companies that network equipment providers sell to are themselves consolidating, meaning it has become increasingly harder to sell equipment with fewer buyers. AT&T has acquired BellSouth and Sprint merged with Nextel.
  • Plus, smaller network equipment firms from Asia have been able to undercut prices, causing even more pressure on sales. China-based Huawei has taken contracts in Asia that in the past belonged to the other big network equipment makers, such as Siemens and Lucent.

So with all signs pointing to a smaller network equipment maker sector, what will the new combination of Nokia and Siemens look like?

ANTICIPATION ...

The combination, which is labeled a 50-50 joint venture by both companies and will be known as Nokia Siemens Network, would have combined revenue of $20.5 billion. Nokia says the new company would have 60,000 employees when it begins operation, shedding an estimated 10% to 16% of its workforce. The job reduction would save the new company and estimated $1.9 billion by 2010. The companies said they expect the merger, which regulators must approve, to close by Jan. 1.

 

Dealwatch executive summary
The Date
The Action
6.19.06 Nokia and Siemens announce merger
4.02.06 Lucent, Alcatel merge and become the first of network gear makers to consolidate
3.07.06 AT&T buys BellSouth, signaling a sweeping round of consolidation among networking equipment makers

Source: The Deal

 

 





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