Nokia has confirmed that it has entered a memorandum of understanding (MOU) to buy rival Alcatel-Lucent in a deal worth €15.6 billion.
The two companies confirmed on Tuesday that they were in advanced talks over a full merger of the two businesses, and announced on Wednesday that an MOU has been signed to seal the deal, with Nokia to offer 0.55 of a new Nokia share for every Alcatel-Lucent share.
Alcatel-Lucent shareholders would own 33.5 percent of the combined company, while Nokia shareholders would own 66.5 percent of the merged entity to be known as Nokia Corporation.
The headquarters of the company will be in Finland, but there would be a presence in France. Nokia chairman Risto Siilasmaa will be the chair of the new company, and Nokia CEO and president Rajeev Suri would be the CEO.
The board will have nine or 10 members, with three from Alcatel-Lucent, including one vice-chairman.
The deal has been approved by the board of directors of both companies, but will still need the approval of Nokia shareholders, as well as regulatory approval. The agreement would be finalised in the first half of 2016, Nokia and Alcatel-Lucent stated.
According to Nokia, the merged Nokia Corporation will achieve a €900 million operating cost saving by 2019 if the transaction is finalised on time. This would come through job cuts by rationalisation of overlapping products, services, regional, and sales organisations. There would also be a reduction in real estate, manufacturing, supply-chain, IT, and other business costs.
The net cash of the two companies was estimated to be €7.4 billion as of the end of 2014.
Nokia Corporation will establish a €100 million investment fund in France for startups with a focus on the Internet of Things, with much of the company's future endeavours in France centred on research on 5G and cybersecurity.
The combination of the two entities will see more than 40,000 staff members working in research and development (R&D) across Bell Labs, FutureWorks, and Nokia Technologies. Nokia Technologies would remain a separate entity from the merged Nokia-Alcatel giant "with a clear focus on licensing and the incubation of new technologies", the companies stated.
Nokia would also commence a strategic review of its HERE business.
The merger will not change Alcatel-Lucent's employment plans in France out to the end of this year, but the company said more staff will be added through an expanded R&D program in the country.
Nokia will also acquire Alcatel-Lucent's presence in China, known as Shanghai Bell.
The companies said that there are highly complementary portfolios -- in fixed and mobile broadband, IP routing, core networks, and cloud services -- and geographies between the two companies across the US, China, Europe, and the Asia-Pacific region.
"We have hugely complementary technologies and the comprehensive portfolio necessary to enable the Internet of Things and transition to the cloud. We will have a strong presence in every part of the world, including leading positions in the United States and China," Suri said in a statement.
"Together, we expect to have the scale to lead in every area in which we choose to compete, drive profitable growth, meet the needs of global customers, develop new technologies, build on our successful intellectual property licensing, and create value for our shareholders.
"For all these reasons, I firmly believe that this is the right deal, with the right logic, at the right time."
Michel Combes, CEO of Alcatel-Lucent, said the merger will give Nokia Corporation the scale needed for the future.
"This transaction comes at the right time to strengthen the European technology industry. We believe our customers will benefit from our improved innovation capability and incomparable R&D engine under the Bell Labs brand. The global scale and footprint of the new company will reinforce its presence in the United States and China," he said.
"Shareholders of Alcatel-Lucent now have the opportunity to participate in the future upside of the industrial project that they have supported during the last two years, through a stronger combined business with greater global scale and a better position for the longer term. The new company will also provide our employees exciting opportunities to be part of a global leader."
A briefing with Suri and Combes has been scheduled for 9am CET.