If you listened too hard to disgruntled shareholders and financial analysts, you could have foreseen a weird M&A ripple effect from the Microsoft-Nokia deal, with Microsoft selling Bing and even Xbox ‘ the elements needed to make sense of the handset purchase at all ‘ and Nokia squandering its windfall on a disastrous takeover of Alcatel-Lucent.
Fortunately for such sanity as remains in the mobile industry, neither outcome now looks likely. Microsoft has been fielding executives to talk about integrating Bing into its entire platform (see separate item), while Nokia admits it did consider making a play for ALU, but rejected the idea. The Finnish firm has apparently realized that tying two rocks together will not make them float, while one rock may float with the moss of the devices business scraped off.
According to Wall Street Journal sources, Nokia had eyed up ALU’s router activities as well as the obvious fit of its wireless operations, though earlier rumors suggested a tie-up could exclude the back end infrastructure. That would have been an easier alliance to negotiate ‘ NSN has been pulling away from transport products and is focusing entirely on mobile broadband, while routers are the highlight of ALU’s growth plan, even as its wireless business is consigned to being a cash generator.
There has been speculation for a couple of years that the third and fourth carrier infrastructure players could merge to present a bigger challenge to Ericsson and Huawei. However, that would have been an even more complicated transaction while NSN was still co-owned by Nokia and Siemens, a partnership that was dissolved earlier this year.
That, and the cash coming from the Microsoft sale, certainly put Nokia in a better position to make a bold acquisition, but that would not have made it a wise move. NSN and ALU are both still embroiled in difficult turnarounds with uncertain outcomes and have bitter experience of mismanaged mergers to blame for some of their troubles. With their business plans diverging to some extent, there could be space for commercial alliances rather than the challenges of a full acquisition.
After the €5.44bn Microsoft sale is finalized, Nokia will also end up with almost €14bn in net cash, its highest sum ever and more than Ericsson has to play with, and so may look for other acquisitions, or even, in future, revisit an ALU tie-up.
Meanwhile, an ALU spokesperson said both wireless and IP routing are core businesses, and the firm’s latest restructuring plan, initiated by new CEO Michel Combes, drills down on these two units, with others likely to be divested. Last week, reports surfaced that ALU had, once again, put its enterprise division on the block, for instance. Although about €1bn in assets are set to be hived off under the ‘Shift Plan’, wireless is still thought to be strategic. However, on the recent third quarter earnings call, Combes was asked whether this was the case, and responded enigmatically, saying: ‘My commitment to investors is to deliver Shift, and obviously to create optionality, depending on what and where the market will go long term.’