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Rap Sheet	Author:	LongTerm CapGains
	Subject:	Off Topic
	Date:	04/19/15 at 8:08 AM CDT

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MKM Partners on the NOK-ALU merger

MKM Partners

Alcatel-Lucent and Nokia have agreed to a merger in which each share of Alcatel-Lucent will be exchanged for 0.55 new Nokia share.

We are increasing our fair-value estimate for Alcatel-Lucent (ticker: ALU ALU -2.0202020202020203% Alcatel-Lucent ADS U.S.: NYSE USD3.88 -0.08 -2.0202020202020203% /Date(1429304419632-0500)/ Volume (Delayed 15m) : 26378257 AFTER HOURS USD3.91 0.03 0.7731958762886598% Volume (Delayed 15m) : 450057 P/E Ratio N/A Market Cap 11261911832.4211 Dividend Yield N/A Rev. per Employee 330582 More quote details and news »

Speculation of a Nokia-Alcatel-Lucent wireless-asset merger first surfaced about one and a half years ago but receded. We think the latest round of talks was spurred on by Sprint ( S), S 0.19607843137254902% Sprint Corp. U.S.: NYSE USD5.11 0.01 0.19607843137254902% /Date(1429304612326-0500)/ Volume (Delayed 15m) : 6608236 AFTER HOURS USD5.11 % Volume (Delayed 15m) : 53021 P/E Ratio N/A Market Cap 20224568367.7843 Dividend Yield N/A Rev. per Employee 931368 More quote details and news » S in <</a<</span<</span<

We expect the integration for this deal will be considerably smoother than the Alcatel and Lucent integration because there is not nearly as much overlap. There is overlap in wireless (88% of Nokia sales, 36% of Alcatel-Lucent including services), but there is good geographic diversification between the two companies with Alcatel-Lucent strong in North America and Nokia strong in Europe and Asia-Pacific. Approximately 60% of Alcatel-Lucent’s revenue is fully incremental for Nokia, including the Internet protocol (IP) routing, optical and fixed-access business lines.

Nokia plans to achieve about 900 million euros of annual operating cost savings by 2019 (incremental to Alcatel-Lucent Shift Plan) and about 200 million euros of annual interest expense reductions in 2017. Our initial pro forma 2016 estimates are theoretical since the deal will likely not be closed until well into the year and the synergies and debt reductions will not be fully achieved yet. Nevertheless, our initial view is that the new Nokia could achieve 2016 pro forma earnings per share of 42 euro cents which is 10 euro cents per share, or 34% higher than our existing estimate for Nokia.

We do not foresee many regulatory hurdles to the deal. Alcatel-Lucent-Nokia’s global wireless market share of 27% will be slightly ahead of Huawei’s [of China] (25%) and well below Ericsson’s ( ERIC ERIC -2.5098039215686274% Ericsson ADS U.S.: Nasdaq USD12.43 -0.32 -2.5098039215686274% /Date(1429304400184-0500)/ Volume (Delayed 15m) : 4585656 AFTER HOURS USD12.43 % Volume (Delayed 15m) : 93962 P/E Ratio 24.301075268817204 Market Cap 40723405054.3446 Dividend Yield 3.1723893805309733% Rev. per Employee 280037 More quote details and news »

Nokia remains committed to its Advanced Technologies (patent licensing) business but is looking to potentially divest its mapping (Here) unit. Alcatel-Lucent still plans to spin off or sell its Submarine Networks business, where trends look very promising, by the end of 2015.

-- Michael Genovese
-- Michael Brockway

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