Why Would Nokia Want All Of Alcatel?

JP Morgan on Wednesday issued a report on Nokia Corporation (ADR) NOK and Alcatel Lucent SA(ADR) ALU amid news of a possible merger.

Analsyts Rod Hall and Ashwin Kennedy wrote, "We believe the reason Nokia has decided to discuss buying all of ALU, not only the wireless business, is that the wireless business is the weakest of ALU’s businesses because it is loss making and has been consistently losing share and thus has lower scale, while the rest of Alcatel Lucent is a much higher quality business.

"In our view, the market will be concerned that because of a lack of overlap there will be no significant cost synergies beyond the wireless business; also of concern to the market will be Nokia assuming the large now fully or overfunded pension plan but one that based on actuarial assumptions can quickly move into a deficit, putting pressure on profitability and increasing share price risk. Factoring cost synergies assumed by us are realized in 3+ years post the closing of deal, the deal has a strong accretion potential."

Analysts were expecting the deal between the two companies to only encompass Alcatel-Lucent’s wireless business and not the entire company.

A previous article on Benzinga discussed JP Morgan analysts commenting on the possible deal.

"This is one of the main reasons that we are positive on ALU. We believe a deal, if reached, would result in a material gain for ALU shareholders," the JP Morgan analysts wrote.

Shares of Alcatel were down 15 percent in Wednesday's pre-market session.