(Bloomberg) — Nokia Oyj has agreed to acquire Infinera Corp. in a deal worth $2.3 billion. The company is expanding its data center networking products and expanding its presence in the US, a potentially important source of growth as the rise of artificial intelligence drives demand for server capacity.
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“AI is driving significant investment in data centers today, and one of the key benefits of this acquisition is that it significantly increases our exposure to data centers,” Nokia CEO Pekka Lundmark said in a call with reporters on Friday.
Infinera’s exposure to “server-to-server communications” within data centers is particularly attractive because this “will be one of the fastest growing segments in the overall communications technology market.”
The acquisition values the optical telecommunications maker’s equity at $6.65 per share, the companies said in a statement late Thursday. At least 70% of the deal will be paid in cash, with the remainder made up of Nokia’s U.S. shares, the statement said, confirming an earlier report by Bloomberg News.
Infinera’s shares rose 15% in 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, rose about 20% in premarket trading on Friday before US markets opened. Nokia shares rose 1.1% to €3.54 at 12:11 pm in Helsinki.
Revenues at Nokia and rival Ericsson AB have been hit by a dramatic drop in spending on mobile networks, as the sector struggles to recoup investments. Nokia also took a big hit when Ericsson won a $14 billion contract in December from AT&T Inc. to build an OpenRAN network, a technology that is more cloud-friendly and opens up networks than previous, highly integrated solutions.
The deal, Nokia’s biggest since its €10.6 billion ($11.4 billion) takeover of Alcatel-Lucent in 2016, will help build its fixed network business. The company expects these to increase in the second half of the year as customers place more orders for technology used in cloud infrastructure.
Infinera and its rivals have also been hurt by weaker spending. The company said revenue fell by about a third between the fourth and first quarters of this year and posted a net loss that missed analysts’ estimates in its May financial results. Larger rivals Cisco Systems Inc. and Ciena Corp. also reported shrinking revenue in the most recent quarter.
Still, Infinera said it had won a significant new customer and CEO David Heard said the company is well-positioned to benefit from key shifts in the industry, including the increase in data centers and AI workloads.
“This is optimal timing, buying just before the market starts to recover,” Lundmark said in an interview Friday. “The optical market has been weak for the past two years,” although Nokia and analysts predict the market will recover by 2025, he said.
What Bloomberg Intelligence says:
Ciena and Cisco could face stiffer competition in the high-speed data center interconnect market from a combination of Nokia and Infinera. The deal gives Nokia market-leading high-speed optical technologies that better position it among cloud accounts, while addressing concerns about Infinera’s balance sheet and giving it resources to acquire telecom and cloud customers.
— Woo Jin Ho, BI Senior Industry Analyst for Technology
Nokia also said in a separate statement Thursday that the French government plans to buy its Alcatel Submarine Networks unit, which has an enterprise value of €350 million. The business, which had largely operated independently and had a much longer sales cycle, was not a good fit with the rest of Nokia’s business, Lundmark said in an interview Friday. The sale would allow the company to concentrate and strengthen its network infrastructure unit.
PJT Partners served as financial advisor to Nokia, while Infinera was advised by Centerview Partners LLC.
–With help from Dinesh Nair, Kati Pohjanpalo, and Michelle F. Davis.
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