Nokia, Alcatel-Lucent see demand for combined product offering (Photo: Microsoft, Alcatel-Lucent)

Nokia and Alcatel-Lucent, citing complementary product portfolios, said they are planning a merger that aims to create a new company that is well positioned for "an IP connected world."

"Together, Alcatel-Lucent and Nokia intend to lead in next-generation network technology and services, with the scope to create seamless connectivity for people and things wherever they are," Nokia CEO Rajeev Suri said. Suri will head the new company, which will be called Nokia Corporation and will be based in Finland.

Under the terms of a memorandum of understanding, Nokia, a Finnish company specialized in network infrastructure, location and mapping software and advanced technologies, will make an offer for all the shares of Alcatel-Lucent. Nokia plans to issue 15.6 billion euros worth of new shares to pay for the acquisition and the transaction is expected to close in the first half of 2016.

Nokia and Alcatel-Lucent, a Franco-US telecommunications equipment and cloud technology group, emphasized how they plan to lay the groundwork for next-generation connectivity. "This foundation is essential for enabling the next wave of technological change, including the internet of things and transition to the cloud," the two companies said in the press statement.

They cited complementary product portfolios, which would bring together fixed and mobile broadband, IP routing, core networks, cloud applications and services. In the new connected world, they said, "technology that used to operate independently now needs to work well together."

Analysts agreed that the two companies could be a good fit. "Nokia is a mobile-only equipment vendor, while Alcatel-Lucent strengths are in the fixed network business," Mark Newman, an analyst with market researchers Ovum, said in a statement.

He also noted that the combined company would have 26 pc of the LTE contract market, narrowing the gap with competitors Huawei and Ericsson, which have 36 pc and 33 pc, respectively.

Newman warned, however, that Nokia and Alcatel-Lucent also have significant duplication in mobile broadband and restructuring could be difficult.

Once the two companies are merged, they expect to realize operating cost savings of about 900 million euros a year by 2019. This year, combined revenue will total about 26 billion euros.

In 2014, Nokia completed the sale of its mobile phone business to Microsoft. Following the closing of the transaction, the company announced that it would concentrate on its networks business, the Nokia Here mapping and location services unit, and Nokia Technologies, which focuses on innovation and new business opportunities.

Alcatel-Lucent was formed in 2006, when the two companies formally merged. Alcatel owns Bell Laboratories, one of the most renowned research and development facilities in the communications industry.

-By Arjen Bongard