Communication | Because of the deal, Nokia has the opportunity to improve its earnings per share by at least ten percent, estimates CEO Pekka Lundmark.
Network devices manufacturer Nokia announced on the night between Thursday and Friday that it will buy the US semiconductor company Infinera for 2.3 billion dollars.
Nokia estimates that the deal will improve its profitability and strengthen its market position in optical networks, especially in North America. 60 percent of Infinera’s sales come from North America. The company’s turnover last year was 1.6 billion dollars.
“We have increased investments in our optical networks business from 2021 to improve our competitiveness. We have increased our recognition among customers, increased our sales and improved our profitability. We believe that now is the right time to increase the scale of the optical business through a company acquisition,” says Nokia’s CEO Pekka Lundmark in the bulletin.
According to him, the businesses of the companies are compatible and complement each other in terms of customers, markets and technologies.
“Through the transaction, we have the opportunity to achieve at least a 10 percent improvement in our comparable earnings per share, creating significant added value for our shareholders,” says Lundmark in the press release.
Nokia is offering one Infinera share at $6.65, which is 37 percent more than Infinera’s average share price over the past six months.
At least 70 percent of the purchase price is 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.
Nokia is increasing its share buyback program to compensate for the dilutive effect of the transaction. The deal will be financed from Nokia’s cash resources. The company’s net cash was 5.1 billion euros at the end of March.
Trade According to Nokia, it enables the faster development of new products and solutions to the market and strengthens the company’s technology leadership. In addition, Nokia believes it will open up new business opportunities among internet companies, where demand is growing rapidly.
“Nokia is an excellent partner for us and together we have a bigger scale and better resources. With the deal, we can speed up innovation and respond quickly to customers’ ever-changing needs at a time when optical solutions are more important than ever. Optical networks play a more central role than before in telecommunications networks and in traffic between and within data centers,” says Infinera’s CEO David Heard in the bulletin.
Infinera will be merged into Nokia’s network infrastructure business group. Nokia’s goal is for the business group’s turnover to grow by 4–6 percent annually and the operating profit percentage, which measures profitability, to be 14–18.
Nokia estimates that the acquisition will generate 200 million euros in “synergy benefits” in comparable operating profit by 2027.
A third of the “synergy benefit” should consist of savings in procurement and manufacturing costs when the supply chain becomes more efficient. Two-thirds will come from operating costs, as the product range is changed, overlaps are eliminated, and product development and administrative costs are reduced. Nokia estimates the one-time “integration cost” related to the deal to be 200 million euros.