Siemens and Nokia are to merge their network telecoms businesses in a joint venture that will create a leading player in the industry with a combined value of up to €20bn (£13.7bn).
Nokia said on Monday as many as 9,000 jobs could be axed in the next four years as a result of the deal between the German engineering conglomerate and the Finnish mobile giant. The merger announcement on Monday followed four months of discussions.
Olli-Pekka Kallasvuo, chief executive of Nokia, who will become chairman of the new venture to be called Nokia Siemens Networks, said: “The communications industry is converging, and a strong and independent Nokia Siemens Networks will be ideally positioned to help customers lower costs and grow revenue while managing the challenges of converging technology.”
The company had a combined €15.8bn in pro forma annual revenues for the calendar year 2005 and is expected to deliver cost savings of €1.5bn annually by 2010. Nokia said this would come primarily form the eliminating overlapping functions, better use of sales and marketing resources, overhead savings and sourcing benefits as well as more efficient research and development.
Nokia said a “substantial” portion of savings was expected to materialise in the first two years. “These changes are expected to result in a headcount adjustment over the next four years in the range of ten to fifteen per cent from the initial combined base of about 60,000.”
Simon Beresford-Wylie, currently executive vice president of networks at Nokia, will become chief executive of the newly formed company, which will have its headquarters in Helsinki and a regional headquarters in Munich, where three of the future five divisions of the new company will be based.
The joint venture follows hard on the heels of Alcatel's merger with Lucent and is a further step in the consolidation of the much-fragmented telecoms equipment industry.
Since the telecoms bubble burst, many industry players have struggled, and consolidation among their customers - the big telecoms carriers - has spurred them also to seek tie-ups. A Siemens-Nokia link could spark other deals, with Sweden's Ericsson and Motorola of the US seen as likely participants in consolidation.
The deal will lead to the separation of Siemens' enterprise networks business, which analysts believe could be sold later at a value of €3bn-€4bn. Nokia will become more focused on its mobile handsets business. Siemens will still have 11 other divisions ranging from power plants to light bulbs.
The deal is set to be warmly welcomed by Siemens investors, many of whom have been pressing hard for a solution to its troubled telecoms division, known as Com. Com is its largest division with €13bn in annual sales but has seen a dramatic decline in recent years, making a profit of just €27m in the second quarter, giving it a margin of 0.8 per cent, well below its target of 8-11 per cent by April.
Some analysts have suggested that Siemens had no coherent strategy for Com. DWS, Germany's largest fund manager and a top five Siemens shareholder called in January for Com to be spun off, suggesting it could add about €20 to Siemens shares, currently standing at €62.84.
The 50-50 joint venture marks the latest step in the restructuring undertaken by Klaus Kleinfeld, the young chief executive of Siemens. Mr Kleinfeld said on Monday: “This combination creates a leading industry player with immediate strength, excellent potential for growth and well-positioned to improve future profitability.”
In the job since January 2005, he has impressed investors, but Siemens' share price has not moved much since his arrival as investors awaited news on Com.
The deal is expected to be finalised by January 1 subject to regulatory approval.
Shares in Siemens were up 5.87 per cent to €66.24 in early trade, while Nokia shares rose 2.8 per cent to €16.11 in early trade.
Copyright The Financial Times Limited 2006
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment