Nokia Oyj (NOKIV.HE) is in talks to buy smaller telecom equipment maker, Alcatel-Lucent (ALUA.PA), a joint announcement by the Finnish and French companies said on Tuesday.
The statement said the two companies were in “advanced discussions” on a “full combination, which would take the form of a public exchange offer by Nokia for Alcatel-Lucent.”
But the French government has invited Nokia Chief Executive Rajeev Suri and Alcatel-Lucent boss Michel Combes, for discussion over the talks.
President Francois Hollande fears that the talks, if successful, would result to severe job cut and have political implications.
A person at the French Economy Ministry said the government wanted more information about the rationale behind the deal.
The government wants to know whether the deal would create a European champion, as well as the impact on French employees.
Alcatel-Lucent has around 6,000 employees in France, out of a total of 52,000 worldwide. Nokia has almost 62,000 employees.
Christophe Civit, a union representative at Alcatel-Lucent, expressed mixed feelings about the possible takeover.
“The future of Alcatel-Lucent would be assured but our biggest fear is the future of our research and development in France, since it develops products in direct competition with Nokia,” he said.
For Nokia, the deal would be a step to growing again.
Nokia sold its flagship handset business to Microsoft Corp in 2014 after mishandling the move to smartphones and being left behind by Apple and Samsung.
Asked on Tuesday for reaction to the deal, Ericsson Chief Executive Hans Vestberg said companies in the sector were all searching for scale.
Vestberg added he did not foresee an immediate challenge to his strategy.
“I will, together with management, evaluate everything that this might mean,” he said.
“A merger would mean major risks for Nokia on future costs, as they also have to negotiate with the French government,” said Mikael Rautanen, analyst at Inderes Equity Research.
“An acquisition of Alcatel’s wireless division would be much easier. But the deal would be an excellent getaway for Alcatel-Lucent from its difficulties.”
JP Morgan is said to be advising Nokia on the deal, while boutique investment bank, Zaoui & Co, is working for Alcatel-Lucent.
