Nokia and Siemens to merge communications service provider businesses

June 19, 2006 Helsinki, Finland, and Munich, Germany -- Nokia and Siemens intend to merge the Networks Business Group of Nokia and the carrier-related operations of Siemens into a new company, to be called Nokia Siemens Networks. The two companies expect the resultant 50/50 joint venture will have strong positions in fixed and mobile network infrastructure and services.

June 19, 2006 Helsinki, Finland, and Munich, Germany -- Nokia and Siemens intend to merge the Networks Business Group of Nokia and the carrier-related operations of Siemens into a new company, to be called Nokia Siemens Networks. The two companies expect the resultant 50/50 joint venture will have strong positions in fixed and mobile network infrastructure and services.

The two companies highlighted that combining their assets will create a strong research and development team with the ability to invest in next-generation fixed and mobile product platforms and services. The new company will have "a world-class fixed-mobile convergence capability, a complementary global base of customers, a deep presence in both developed and emerging markets, and one of the industry's largest and most experienced service organizations," according to a press release.

The transaction is expected to close before the start of next year and is subject to customary regulatory approvals, the completion of standard closing conditions, and the agreement of a number of detailed implementation steps.

After closing, the financial results of Nokia Siemens Networks will be consolidated by Nokia and accounted for at equity by Siemens.

Simon Beresford-Wylie, currently executive vice president and general manager of networks at Nokia, will assume the position of CEO immediately upon the closing of the merger. Peter Schoenhofer will assume the position of CFO. Schoenhofer is currently a member of the Executive Board of Siemens AG Austria.

Based on the 2005 calendar year, the combined company had EUR 15.8 billion in pro forma annual revenues and is expected to start operations with 60,000 employees. Estimated cost synergies of EUR 1.5 billion annually are expected by 2010.

Nokia Siemens Networks will have its operational headquarters in the metropolitan area of Helsinki, Finland, and with a regional headquarters in Munich, Germany, where three of the future five divisions of the new company will be based. Nokia Siemens Networks will be registered in the Netherlands.

Both Nokia and Siemens expect the impact of the partnership on their respective EPS, on a pro forma basis excluding restructuring charges, to be accretive by the end of 2007 assuming a closing by January 1, 2007.

Meanwhile, the Siemens managing board has decided to pursue consolidation in the enterprise networks industry. Siemens is in negotiations with several interested parties to execute this strategy.

The Wireless Modules business will be integrated into the Siemens Automation and Drives Group as of October 1, 2006.

The announcement elicited a shrug of the shoulders from Michael Howard, founder and principal analyst at Infonetics Research. "As another telecommunications equipment mega consolidation play arrives touting the many obvious synergies of size to serve the major telecommunications carriers, let us not forget that the spur was set in the side of the supplier segment by the emergence of the aggressively lower-cost Chinese suppliers," he says. "In the end, profitability and a lower cost of operations will rule--remember Marconi? The final proof of a good merger is a profitable, still-standing business five years from now."

More in Mergers & Acquisitions