Nokia has confirmed that it will buy French networking firm Alcatel-Lucent in a deal worth €15.6bn.
Nokia said that the move will enable the company to make cost savings of €900m a year by 2019, and will position it to grow in key markets, including China.
The news comes just one day after reports hinting at the deal had surfaced, and Nokia chief executive Rajeev Suri said that the acquisition is an ideal fit for both companies.
"Together, Alcatel-Lucent and Nokia intend to lead in next-generation network technology and services, with the scope to create seamless connectivity for people and things wherever they are," he said.
"Our innovation capability will be extraordinary, bringing together the R&D engine of Nokia with that of Alcatel-Lucent and its iconic Bell Labs.
"We will continue to combine this strength with the highly efficient, lean operations needed to compete on a global scale."
Suri also said that the acquisition is an important part of Nokia's growth plans for the future, as it will give the firm a much larger presence in the US and China.
"For all these reasons, I firmly believe that this is the right deal, with the right logic, at the right time," he added.
Michel Combes, chief executive of Alcatel-Lucent, was equally upbeat on the purchase.
"A combination of Nokia and Alcatel-Lucent will offer a unique opportunity to create a European champion and global leader in ultra-broadband, IP networking and cloud applications," he said.
"This transaction comes at the right time to strengthen the European technology industry. We believe our customers will benefit from our improved innovation capability and incomparable R&D engine under the Bell Labs brand."
The market appeared less sure about the arrangement, however, and shares in Nokia fell after it was confirmed.
The deal will undoubtedly help the two firms to cut costs and increase economies of scale. This would be an advantage as they lag behind rivals such as Cisco and Huawei in the telecoms space and need to claw back market share.
The merger also marks another twist in Nokia’s history after selling its mobile phone business to Microsoft last year in a deal worth around $5bn. This was seen as a symbolic end to Nokia’s dominance in the mobile market, of which it had been the undisputed leader since the early 2000s.
The news of the Alcatel deal follows speculation that Nokia could sell its Here mapping software. Uber has been touted as one buyer, and any sale could be used to help cover the cost of an acquisition of Alcatel.
The wider telecoms market is undergoing a period of intense change, especially in the UK where two major carrier deals are underway. The first sees BT buying EE for £12.5bn, and the second is Three buying O2 for £10.5bn.
EE, O2, Vodafone, Three and Airspan open the bidding
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