The recently finalized acquisition of Alcatel by Nokia might be what the company needs to create sufficient value for shareholders and be the final push for new investors to buy stock in the company.
Giant in the Making
As a result of the deal announced in April last year and finalized on January 14, Nokia Corporation and Alcatel-Lucent will function as one company in 2016. The merger of two networking giants creates a company valued at $37 billion, making it Europe’s largest and one of the world’s biggest network equipment companies.
The move has put two of the six biggest core networking and radio companies together, making it fully competitive with other goliaths in the field, such as Huawei and Ericsson. However, the question still remains whether this move is enough to give the merged company’s shares more perceived value and entice investors into buying its stock.
The full potential of the merger, which may attract significant interest from investors, is the synergies. After the acquisition of the French company, Nokia announced that it had plans to eliminate redundant annual operational expenditure of over $900 million by 2019, a deadline it has now moved forward to 2018. At the same time, it announced that an additional $200 million would be cut in interest expenses by the next year.
The numbers are huge and are giving a positive indication of the future. Both of these companies are known for their high levels of operational costs that result in a significant part of their gross profits getting gobbled up by operating expenses. If the new company can deliver on these impressive goals, then the future possibilities are endless.
This level of cost cutting and streamlining should also counter critics who point to the unfavorable prospects for the industry in the future, making Nokia a good possible option for investors.