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December 14, 2006

Bribery probe threatens Siemens/Nokia telecoms merger

A 420m euro ($555m) bribery scandal at German conglomerate Siemens AG is threatening its agreement with Nokia Corp to combine their fixed and mobile network infrastructure businesses in a 50-50 joint venture, a deal both companies regard as crucial to react to the consolidation of the industry and the rise of low-cost competitors from China.

By CBR Staff Writer

In a joint statement, the companies said that Nokia Siemens Networks was now expected to start operations in the first quarter 2007, instead of January 2007 as previously expected.

They said that in light of the current investigations of Siemens, the scope of which includes the carrier-related business to be transferred to the new company, Nokia and Siemens intend to adjust their agreements in order to have Siemens conduct an appropriate compliance review prior to closing of the transaction.

They said that this was an addition to the previously agreed closing conditions. Nokia will participate actively in the review, said the company.

Siemens’ communications business is at the heart of current inquiries, which include a criminal investigation, though Siemens has sought to put the figures into context by saying its telecoms unit had revenue of 70bn euros ($92.5bn) during the seven years under scrutiny.

Nokia insisted that it was still committed to the merger as the business logic had not changed. But it argued that it was essential that the newly merged company had a clean start so would await the results of the investigation.

Siemens has acknowledged that there were material weaknesses in its financial controls.

With combined sales of 15.8bn euros ($19.9bn) in 2005, Nokia Siemens Networks would become the number-three player in a market that will be led by the combination of Alcatel and Lucent ($21.6bn), followed by Ericsson ($20.4bn) inflated by its Marconi acquisition. It would be the second largest company, behind Ericsson, in wireless networks and third in fixed-line, behind Alcatel and Cisco Systems.

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