Inside Information: Nokia to acquire Infinera to increase scale in Optical Networks and accelerate product roadmap

Core Viewpoint - Nokia is set to acquire Infinera for $6.65 per share, valuing the transaction at an enterprise value of $2.3 billion, which represents a 28% premium to Infinera's share price as of June 26, 2024, and a 37% premium to the trailing 180-day volume weighted average price [1][5][10] Group 1: Strategic Rationale - The acquisition aims to enhance Nokia's scale and profitability in the Optical Networks sector, allowing for accelerated product development and improved customer offerings [1][3] - The combined entity is expected to increase Nokia's Optical Networks business scale by 75%, enabling a more competitive stance in the market [4][10] - The merger aligns with Nokia's strategy to strengthen its technology leadership in optical networks and expand its customer base, particularly among webscale customers [1][10] Group 2: Financial Implications - The transaction is projected to be accretive to Nokia's comparable EPS in the first year post-close, with an expected over 10% EPS accretion by 2027 [2][11] - Nokia anticipates achieving net comparable operating profit synergies of EUR 200 million by 2027, with one-third of these synergies coming from cost of sales and the remainder from operating expenses [4][11] - The deal is expected to deliver a return on invested capital (RoIC) comfortably above Nokia's weighted average cost of capital (WACC) [2][10] Group 3: Transaction Details - Infinera shareholders can choose to receive either cash, Nokia shares, or a combination of both, with at least 70% of the consideration being paid in cash [5][10] - The acquisition has received unanimous approval from the boards of both companies and is targeted to close in the first half of 2025, pending regulatory and shareholder approvals [6][10] - Nokia plans to increase its share buyback program to mitigate dilution from the acquisition [10][26]