Investors are driving shares of Infinera (INFN, Financial) up by 17% today after Nokia (NOK, Financial) agreed to purchase the company for $6.65 per share, totaling around $2.3 billion. This represents a 26% premium over INFN's previous closing price of $5.26. NOK will finance at least 70% of the purchase with cash, with the rest in stock. To mitigate stockholder dilution, NOK's board plans to increase its repurchase plan. The acquisition is expected to be accretive to NOK's comparable EPS in the first year post-closure, anticipated by the first half of 2025, with over 10% EPS accretion projected by 2027.
NOK investors are also positive about the deal. The acquisition price is approximately 7.5x EBIT, considering €200 million in target synergies. The merger is expected to bring multiple benefits to NOK, which has faced macroeconomic and competitive challenges.
- INFN and NOK are key players in the fragmented networking equipment market, led by Huawei, Cisco (CSCO, Financial), and Ciena (CIEN, Financial). They believe that scale and vertical integration are crucial for supporting the growing demand for AI workloads.
- Adding INFN strengthens NOK's geographical footprint. While over 70% of NOK's sales come from Europe, EMEA, Latin America, and Asia Pacific, only about 20% are from the U.S. In contrast, 60% of INFN's sales are in the U.S., significantly boosting NOK's presence in the optical markets.
- Both companies have faced macroeconomic challenges and a stagnant optical market since the second half of 2023. However, NOK expects growth to return in 2025, driven by investments in AI and cloud workflows, making this an opportune time for integration.
With INFN trading slightly below NOK's purchase price, the market is cautious about potential counterbids from larger players in the networking equipment industry. However, regulatory issues in the U.S. make such counterbids from companies like CSCO and CIEN unlikely.
Overall, the NOK-INFN merger is a strategic move. Despite the current lull in the networking equipment market, industry players like NOK, INFN, CIEN, and CSCO expect growth to resume in 2025, driven by AI and cloud-related demands.
