Nokia will acquire Alcatel-Lucent for €15.6 billion.
The transaction, expected to close in the first half of 2016, will see the two parties combining their innovation capabilities to create a company with 40,000 R&D employees. The combined company is expected to target the 5G, IP, software-defined networking, cloud, analytics and sensors market.
Huawei and Ericsson, who currently lead in the networking market, will now have to contend with . According to figures from Gartner, Ericsson held roughly 17 percent of the market while Huawei held 16.1 percent.
The combination of Alcatel-Lucent and the former mobile company, who held shares of 8.7 percent and 8.2 percent respectively, will make them a comparable player. Gartner Research Director Sylvain Fabre claims that the move puts the new company in the same "weight category" as Huawei and Ericsson.
"The big story here is [Nokia] changing categories and gaining scale," Fabre adds. "While Nokia was by its own admission a specialist…they need the scale."
While Nokia’s share price dipped slightly on Wednesday, it quickly returned to normal.
Fabre says it’s "possible" that Ericsson may respond with targeted acquisitions around IP.
Michel Combes, Chief Executive Officer of Alcatel-Lucent, said: "A combination of Nokia and Alcatel-Lucent will offer a unique opportunity to create a European champion and global leader in ultra-broadband, IP networking and cloud applications.
"I am proud that the joined forces of Nokia and Alcatel-Lucent are ready to accelerate our strategic vision, giving us the financial strength and critical scale needed to achieve our transformation and invest in and develop the next generation of network technology."
Combes added: "This transaction comes at the right time to strengthen the European technology industry. We believe our customers will benefit from our improved innovation capability and incomparable R&D engine under the Bell Labs brand. The global scale and footprint of the new company will reinforce its presence in the United States and China."
"The proposed transaction represents a compelling offer for our shareholders both in terms of upfront premium and long term value creation potential.
"Shareholders of Alcatel-Lucent now have the opportunity to participate in the future upside of the industrial project that they have supported during the last two years, through a stronger combined business with greater global scale and a better position for the longer term.
"The new company will also provide our employees exciting opportunities to be part of a global leader."