Nokia to acquire Infinera and sell submarine network business for €350M

Nokia has announced an agreement to acquire Infinera, a global supplier of innovative open optical networking solutions and advanced optical semiconductors.

The transaction values Infinera at $6.65 per share, equating to an enterprise value of US$2.3 billion, as shared by the company. This represents a 28% premium to Infinera’s closing share price on June 26, 2024, and a 37% premium to the trailing 180-day volume-weighted average price.

The acquisition structure allows for at least 70% of the consideration to be paid in cash, with Infinera shareholders having the option to receive up to 30% of the aggregate consideration in Nokia ADSs. To mitigate potential dilution, Nokia’s board of directors has committed to increasing and accelerating its ongoing share buyback program, which is in addition to Nokia’s current €600 million buyback program.

This strategic merger aims to improve scale and profitability, enabling accelerated development of new products and solutions for customers. The transaction aligns strongly with Nokia’s strategy to strengthen its technology leadership in optical networking and increase exposure to the rapidly growing webscale customer segment.

Nokia projects that the combination will accelerate its journey towards a double-digit operating margin in its optical networks business. The company targets €200 million in net comparable operating profit synergies by 2027. Approximately one-third of these synergies are expected to come from cost of sales efficiencies, with the remainder from operating expenses due to portfolio optimisation, integration, and reduced product engineering and standalone entity costs. Nokia anticipates one-time integration costs of approximately €200 million related to the transaction.

The acquisition, along with the recently announced sale of submarine networks, will reshape Nokia’s network infrastructure around three strong pillars: Fixed networks, IP networks, and optical networks. Nokia targets mid-single digit organic growth for the overall Network Infrastructure business and aims to improve its operating margin to mid-to-high teens level.

The transaction is expected to be accretive to Nokia’s comparable EPS in the first year post-close, with over 10% comparable EPS accretion projected by 2027. The return on invested capital is anticipated to comfortably exceed Nokia’s weighted average cost of capital.

Pekka Lundmark, president and CEO of Nokia, emphasised the strategic fit of the combined businesses, citing complementary customer, geographic, and technology profiles. Federico Guillén, president of network infrastructure at Nokia, highlighted the acquisition’s potential to strengthen Nokia’s optical business, expand growth opportunities, and improve operating margins.

David Heard, CEO of Infinera, expressed enthusiasm about the value this combination will bring to global customers, emphasising the enhanced ability to address rapidly changing customer needs in optical networking, particularly in telecom networks, inter-data centre applications, and inside data centres.

The merger offers several strategic benefits:

• Improved global scale and product development capabilities, increasing the scale of Nokia’s optical networks business by 75%.
• Enhanced in-house capabilities, including an expanded digital signal processor development team and expertise in silicon photonics and indium phosphide-based semiconductor material sciences.
• Expanded presence in the North American optical market, complementing Nokia’s strong positions in APAC, EMEA, and Latin America.
• Accelerated expansion into enterprise and webscale segments, with internet content providers making up over 30% of Infinera’s sales.
• Development of high-speed and low-power optical components for intra-data centre applications, particularly suited to AI workloads.

The transaction is expected to close during the first half of 2025, subject to approval by Infinera’s shareholders, regulatory approvals including antitrust, CFIUS and other foreign direct investment approvals, and other customary closing conditions. Oaktree Optical Holdings, L.P., which owned approximately 11% of Infinera common stock as of June 27, 2024, has agreed to vote their shares in favour of the transaction.

Sale of submarine networks business

In a separate announcement, Nokia disclosed its intention to sell Alcatel Submarine Networks (ASN) to the French State for an Enterprise Value of €350 million, while retaining a 20% shareholding initially. This divestment allows Nokia to focus on core markets and improve the profitability of its network infrastructure business group.

While this restructuring is expected to reduce Network Infrastructure’s net sales by approximately €1 billion, it is projected to increase its operating profit margin by 100-150 basis points. Nokia stated that this does not impact its previously disclosed financial outlook.

The sale of ASN is expected to close at the end of 2024 or beginning of 2025, subject to formal consultation of ASN’s French Works Council and other customary closing conditions and regulatory approvals.

(Photo by JJ Ying)

See also: Nokia unveils world’s first immersive voice and audio call technology

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Tags: connectivity, network, nokia, telecoms