(Bloomberg) — Nokia Oyj has agreed to buy Infinera Corp. in a $2.3 billion deal that will expand the company’s data center networking products and increase its presence in the United States, a potentially key source of growth then that the boom in artificial intelligence is driving demand for server capacity.
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“AI is currently driving significant investment in data centers, and one of the key attractions of this acquisition is that it significantly increases our exposure to data centers,” Nokia CEO Pekka Lundmark said on Friday. during a call with journalists.
Infinera’s exposure to “server-to-server communications” within data centers is particularly attractive as this will be “one of the fastest growing segments in the overall communications technology market.”
The buyout will value the optical telecommunications group at $6.65 per share, the two companies said in a press release published Thursday evening. At least 70% of the transaction will be paid in cash, with the remainder in U.S. shares of Nokia, according to the statement, which confirmed a previous Bloomberg News report.
Infinera shares have risen 15% over the past 12 months, giving the company a market value of about $1.2 billion. The shares, which closed at $5.26 each on Thursday, jumped about 20% on Friday before the U.S. stock market opened. Nokia shares were up 1.1% at 3.54 euros as of 12:11 p.m. in Helsinki.
Sales at Nokia and rival Ericsson AB have been hurt by a dramatic drop in spending on mobile networks as the industry struggles to recoup its investments. Nokia also took a hit when Ericsson won a $14 billion contract with AT&T Inc. in December to build OpenRAN, a more cloud-friendly technology that opens up networks more than previous, highly integrated solutions.
The deal, Nokia’s biggest since its 10.6 billion euro ($11.4 billion) takeover of Alcatel-Lucent in 2016, will help grow the fixed network business which the company says , will lead to a recovery in the second half as customers increase their orders for technology used in cloud infrastructure.
Infinera and its competitors also suffered from lower spending. The company reported a drop in revenue of about a third between the fourth and first quarters of this year and posted a net loss, which fell short of analysts’ expectations in its May financial results. Its larger competitors, Cisco Systems Inc. and Ciena Corp., also reported revenue declines in the latest quarter.
Nonetheless, Infinera said it had gained a major new customer and CEO David Heard said the company is positioned to take advantage of key changes in the industry, including the proliferation of data centers and AI workloads. .
“It’s a great time to buy something just before the market starts to recover,” Lundmark said in an interview Friday. “The optics market has been weak for two years,” even though Nokia and analysts expect the market to recover in 2025, he said.
What Bloomberg Intelligence says:
Ciena and Cisco could face tougher competition in the high-speed data center interconnect market if Nokia and Infinera combine. The deal gives Nokia leading-edge high-speed optical technologies that can better position it to compete with cloud customers, while easing Infinera’s balance sheet problems, giving it the resources to acquire telecom and cloud customers.
— Woo Jin Ho, Senior BI Industry Analyst for Technology
Nokia also said in a separate statement Thursday that the French government is considering buying its Alcatel Submarine Networks division, which has an enterprise value of 350 million euros. The company, which operated largely independently and had a much longer sales cycle, did not fit well with the rest of Nokia’s business, Lundmark said in an interview Friday. The sale allows the company to focus and strengthen the network infrastructure division.
PJT Partners served as financial advisor to Nokia, while Infinera was advised by Centerview Partners LLC.
–With assistance from Dinesh Nair, Kati Pohjanpalo and Michelle F. Davis.
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