Nokia in advanced talks on Alcatel-Lucent buyout

Nokia is in talks to buy smaller telecom equipment maker Alcatel-Lucent, a deal combining the industry’s two weakest players that is backed by the French government but could pose challenges in cutting costs.

In a joint announcement, the Finnish and French companies said they were in “advanced discussions” on a “full combination, which would take the form of a public exchange offer by Nokia for Alcatel-Lucent”. The two, which have been seen as a possible combination for the last several years, cautioned that the discussions could still fall apart.

Shares in Alcatel, a group worth about €11bn based on Monday’s share price, rose about 16%. Shares in Nokia, worth about €29bn, fell as much as 7% in morning trade before paring back losses to end down 3.6%. France’s Le Monde newspaper reported a further announcement could come as early as today.

The pair are a good fit in terms of products and geographies, and bulking up would help them cut costs as they try to compete with mobile market leader Sweden’s Ericsson and low-cost powerhouse China’s Huawei.

Nokia would expand its presence in the key US market where Alcatel-Lucent is a major supplier to operators AT&T and Verizon.