Nokia makes a billion-dollar acquisition in the United States

Network equipment manufacturer Nokia buys a Californian manufacturer of optical network solutions and semiconductors Infineran for about 2.3 billion US dollars. Nokia is paying $6.65 apiece for Infinera shares, which is 28 percent more than Infinera’s closing price on Wednesday.

According to the release, with the help of the deal, Nokia will increase the business of optical networks and speed up product development.

According to Nokia, the transaction forms a scalable and global optical network business that strengthens Nokia’s technology portfolio and vertical integration and improves Nokia’s market position in optical networks, especially in North America.

Nokia’s goal is to obtain synergy benefits of 200 million euros from the deal in a comparable operating profit by 2027. The deal is estimated to improve Nokia’s comparable operating profit and earnings per share during the first year, and bring more than a ten percent improvement to comparable earnings per share in 2027.

According to the offer, at least 70 percent of the purchase price will be paid in cash and a maximum of 30 percent in shares. Infinera shareholders can choose either cash, Nokia shares or a combination of the two.

In addition, Nokia plans to increase its share buyback program to compensate for the dilutive effect of the transaction. The deal will be financed from Nokia’s cash resources.

Nokia believes that the deal has strong strategic and financial rationale, and is expected to accelerate the achievement of a double-digit operating profit percentage in the Optical Networks business. Nokia’s goal is to achieve synergy benefits of 200 million euros in comparable operating profit by 2027.

“This transaction, together with our recently announced sale of the submarine network business, will create a renewed Network Infrastructure business group, which will include three strong businesses in the future: Fixed Networks, IP Networks and Optical Networks,” the company’s press release says.

In the future, Nokia aims for an annual organic growth rate of 4–6 percent and an operating profit margin of 14–18 percent for this entity.

“We have increased investments in our optical networks business from 2021 to improve our competitiveness. We believe that now is the right moment to increase the scale of the optical business through a company acquisition. With the transaction, we have the opportunity to achieve at least a ten percent improvement in our comparable earnings per share, creating significant added value for our shareholders,” Nokia’s CEO Pekka Lundmark says in the announcement.