Nokia in Advanced Talks to Buy Alcatel-Lucent Wireless Assets -Bloomberg

3:04 pm ET April 13, 2015 (Dow Jones) Print

 

 

Nokia Corp. (NOK) is in advanced talks to buy the wireless assets of Alcatel-Lucent SA (ALU), Bloomberg News reported Monday on its website, citing people familiar with the matter.

An agreement could be announced this week, although no deal has been reached and talks still could fall apart, the people told Bloomberg.

Full story at: bloomberg.com/ne...assets

Write to nymonitoring@dowjones.com

Great couple of days for ALU, glad I have accumulated 41K shares of ALU, the original shares were at a bargain price in the 2.50s, could not be happier to see the due diligence paying off.

 

I figure the sale of the wireless unit should bring in at least $5B (one times revenue for that division, maybe more), which would seal the turnaround for ALU.  The typical Price to Sales ratio in the Networking Equipment sector is closer to 2, so I am thinking conservatively it brings in $5B, anything else would be giving it away on the cheap.  The fact that the negotiations have been on and off for years tells me ALU has stood its growung and now they may be getting the money they wanted all along.

 

NOK It would give it all kinds of options.  If the sale goes through, a few that come to mind:

 

1 Pay off Debt

2 or be able to issue bonds at much reduced interest rates (should not be a problem now that the balance sheet is solid) and extend debt period, thus reducing the cost of capital

3 Invest more in R&D

4 Share buyback (not my first choice, but an option nevertheless)

5  An eventual return to paying dividends

6 Aquire a small company in the SDN space

 

With this huge money injection, ALU will have about 40% of its market cap in cash, a very strong balance sheet.

ALU winning wireless contracts in China give the wireless unit much more appeal to NOK, and should be more valuable to them.  Assuming the division has not had great gross margins, it allows ALU to further reduce the drag on gross margins and profits from a division with high costs.  NOK on the other hand will over time have an easier time laying off some of the workers, thus extracting better gross margins than ALU had been able to.

Human, outstanding on ALU. Big congrats. I should have piggy-backed on your fine DD.

Many thanks, I feel lucky, specially on the timing, I don't think I have had this timing ever.  Typically it takes one to 3 years for most of my picks to work out.

Agreed. Thanks for sharing LT/Human. I had 700 shares in each of my kids accounts and sold them today. Holding 8k in trading account and 7k in Roth. Not quite the amnount I had in INFN, but still a nice return (on paper) today.

OT - ALU - Lt cap - as always thanks for the analysis. I know your long term PT is $7-$8, but is my assumption that at $4.90, the NOK good news is pretty well baked in? I'd like to add to my paltry stake, but it feels pricey. (You have 41k shares?!!!! You *are* my Higher Power lol.)

Thanks for the kind words. I would not suggest to anyone to add or start a position, it would be too risky.   The market now is gauging what the price may be, from the trading and price movement today, I would say NOK is probably going to make a bid in the 5s.   I would have preferred ALU sells the Wireless only and fixes itself and makes a run to the 7-8 area, I think it would be possible.  That said, I hope analysts have the value of the wireless division way too low.  Most companies in the sector are selling for 2 times sales, why would ALU sell a division for only 0.55 times sales??