Nokia Buys Infinera for $2.3B, Expanding Optical Networking Market Reach

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DateJun 28, 2024

Nokia (NYSE: NOK) has announced its acquisition of the global supplier of advanced optical semiconductors and openoptical networkingsolutions,Infinera(NASDAQ: INFN). The definitive agreement values Infinera at $6.65 per share. This transaction, with an enterprise value of approximately $2.3 billion, represents a 28% premium to Infineras share price as of June 26, 2024, and a 37% premium to its trailing 180-day volume weighted average price (VWAP).

At least 70% of the purchase consideration will be paid in cash, while Infinera shareholders can elect to receive up to 30% of the aggregate consideration in Nokia American Depositary Shares (ADSs). To mitigate any dilution from the deal, Nokias Board of Directors has committed to accelerating its share buyback program.

The merger aims to leverage the strengths of both companies to enhance scale and profitability, facilitating the accelerated development of new products and solutions. This move is seen as a strategic alignment with Nokias broader goals, particularly in strengthening its technology leadership in optical networking and expanding its presence among webscale customers, the fastest-growing market segment.

We believe now is the right time to take a compelling inorganic step to further expand Nokias scale in optical networks, said Pekka Lundmark, President and CEO of Nokia.Nokias acquisition of Infinera is projected to drive the companys Optical Networks business towards a double-digit operating margin, targeting EUR 200 million in net comparable operating profit synergies by 2027. This transaction, coupled with the recent sale of Submarine Networks, aims to reshape Nokias Network Infrastructure into three robust pillars: Fixed Networks, IP Networks, and Optical Networks. Nokia expects mid-single-digit organic growth in its Network Infrastructure business and aims to improve its operating margin to mid-to-high teens.

Financially, the acquisition is anticipated to be accretive to Nokias comparable EPS in the first year post-closing, delivering over 10% comparable EPS accretion by 2027 and achieving a return on invested capital (RoIC) comfortably above Nokias weighted average cost of capital (WACC).

Pekka Lundmark, President and CEO of Nokia, highlighted the strategic significance of the acquisition, stating, In 2021, we increased our organic investment in Optical Networks to enhance our competitiveness. This decision has yielded improved customer recognition, strong sales growth, and increased profitability. We believe now is the right time to take a compelling inorganic step to further expand Nokias scale in optical networks. The combined businesses have a strong strategic fit given their highly complementary customer, geographic, and technology profiles. With the opportunity to deliver over 10% comparable EPS accretion, we believe this will create significant value for shareholders.

Federico Guilln, President of Network Infrastructure at Nokia, expressed enthusiasm about the merger, stating, Today, Network Infrastructure offers a unique portfolio across the fixed access, optical, and IP networks domains built on leading technology innovation and a strong customer focus. This acquisition will further strengthen the optical pillar of our business, expand our growth opportunities across all our target customer segments, and improve our operating margin. I am extremely pleased that we are bringing together these two talented and dedicated teams. Separately, we have long respected each other as competitors. Together, we find the logic of combination irresistible.

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Infinera boothInfineras Presence in the North American Optical Market

David Heard, CEO ofInfinera, also expressed optimism, saying, We are really excited about the value this combination will bring to our global customers. We believe Nokia is an excellent partner, and together we will have greater scale and deeper resources to set the pace of innovation and address rapidly changing customer needs at a time when optics are more important than ever across telecom networks, inter-data center applications, and now inside the data center. This combination will further leverage our vertically integrated optical semiconductor technologies. Furthermore, our stakeholders will have the opportunity to participate in the upside of a global leader in optical networking solutions.

The acquisition would promise significant strategic benefits, including improved global scale and product roadmap, increased in-house capabilities, and a stronger position in the North American optical market. The combined business will possess an expanded digital signal processor (DSP) development team, expertise in silicon photonics and indium phosphide-based semiconductor material sciences, and deeper competency in photonic integrated circuit (PIC) technology, creating a formidable player in optical networking.

Moreover, the merger is expected to enhance Nokias commitment to US-based manufacturing and advanced testing and packaging capabilities, accelerating its expansion into the enterprise and webscale sectors. Infineras strong presence in the North American optical market, representing approximately 60% of its sales, will complement Nokias established positions in APAC, EMEA, and Latin America. This acquisition also aligns with Nokias strategic goal of diversifying its customer base and growing in the enterprise segment.

Under the terms of the agreement, Nokia will acquire Infinera for $6.65 per share. Infinera shareholders can elect to receive either $6.65 in cash, 1.7896 Nokia shares, or a combination of $4.66 in cash and 0.5355 Nokia shares for each Infinera share, with all Nokia shares issued as American Depositary Shares. Nokias Board of Directors has committed to increasing its ongoing share buyback program to offset dilution from the equity component of the acquisition.

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