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Sangita khatri
Sangita khatri
Articles (21) 

Does the Acquisition of Alcatel-Lucent Make Nokia a Good Buy?

In the Q4FY14, Nokia (NYSE:NOK) provided net sales of €3.8 billion, which escalated by 8% along with 43.5% non-IFRS gross margin and profit of €524 million or 13.8% of sales, at the group level.

Net sales were up 14% compared to third quarter. Network net sales would have improved 8% year on year and 11% successively, at constant currency. For the full year, sales were mostly even associated to 2013. The company is successful in delivering non-IFRS gross margin over 36% for seven consecutive years along with four straight quarters topping 38%.

Throughout the quarter, company’s contract drive in the networks sustained, and they signed significant contracts with customers, such as China Mobile (NYSE:CHL), Mobily in Saudi Arabia and TATA DOCOMO and Bharti Airtel (BHARTIARTL) in India. In terms of growth and profitability, mobile broadband performed very well. By overall performance for mobile broadband, company came up with two things:

  1. The massive transformation
  2. Performance in core networks

Buying Alcatel is a plus

Initially, Alcatel-Lucent (NYSE:ALU) has rationalized its debt but the financial condition of the company is still at risk. The present contract structure values Alcatel at over $16 billion – this would have been a huge cash outflow for Nokia, and ALU's vulnerable finances might have generated some glitches for the company in the future although all-stock pacts will in fact be of consequence in improving the balance sheet of Nokia.

As Alcatel has a strong position and solid bonds with the telecom operators in the country, therefore by acquiring Alcatel-Lucent might be a way for Nokia to capture U.S market. Alcatel-Lucent has a wide network of wireline assets in the country and the company has contracts with Verizon (NYSE:V) and AT&T (NYSE:T). Nokia will be able to decrease R&D expenses by merging R&D teams of both companies.

At the end of the fiscal year, Alcatel had close to $6 billion in cash and cash equivalents. This will bring about an enhanced FICO score for Nokia, which ought to permit the organization to raise reserves at a lower cost later on if there is a need. Then again, Nokia had total cash of about $8 billion on in hand toward the end of the most recent year. On the off chance that this was an all cash deal, then Nokia may have been in a tricky position.

Regarding the buyout, no doubt Nokia got a fair deal all the while. For about €4.27 ($4.52) a share, it has admittance to Alcatel's impressive resources by method for an open trade offer, and anticipates that the arrangement will shut in the first 50% of 2016.

Conclusion

The buyout is useful for both the organizations as both of them are taking a shot at corner high-development market space. Larger scale with a stronger asset report and generous liquidity will permit the consolidated organization to accomplish a superior credit score, and it will likewise help later on development. It ought to be remembered that the IP-Networking and the Ultra-quick Broadband are at the incipient phases of the business cycle, and there is a ton of potential for development. As the joined organization begins to develop these fragments, the shareholders will begin to see the advantages. In the event that ALU shareholders keep on remaining

Nokia is getting greatly attractive resources, which ought to position it well for long haul development. Also, the offer of its HERE maps unit ought to acquire more finances for extension and it ought to likewise streamline and centre the organization's operations. Therefore, productivity will build which will bring about higher net revenues. By and large, it is a decent arrangement for patient shareholders and they will advantage from the long haul development capability of the joined organization.


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