Nokia and Alcatel-Lucent confirmed they are in talks for a potential merger. The merger would take the form of a public bid by Nokia for Alcatel-Lucent. Further details of the negotiations were not disclosed.

While Nokia and Alcatel-Lucent are similar in size in terms of annual sales, Nokia has a market capitalisation of nearly three times that of Alcatel-Lucent. Nokia’s share price has risen steadily since it put an end to its loss-making mobile phone business and improved profitability at its networks business in the past year. A merger of the two companies would create a company of similar size in terms of revenues to market leader Ericsson and offer the group increased scale to invest in new technologies.

The talks follow several years of restructuring at both companies in an attempt to halt a slide in sales and margins. Both have divested a range of non-core activities and let go thousands of employees. In addition to selling its mobile phone business to Microsoft, Nokia has divested several other business lines and narrowed the focus of its network equipment to wireless only. Alcatel-Lucent has seen its share of the wireless market shrink, while it maintains a significant presence in the fixed market, focusing on broadband access and IP networking.

Alcatel-Lucent’s continued presence in the submarine cable, public safety and government markets means the merger could face regulatory scrutiny due to security concerns, particularly in the US and France. The French government is also likely to seek assurances that the overlap between the two companies does not lead to significant job losses in France.

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