French government backs Nokia bid for Alcatel-Lucent

France's economy ministry has thrown its support behind Nokia's proposed acquisition of Paris-based Alcatel-Lucent, signalling a shift in tone on the contentious issue of cross-border industrial tie-ups.

Speaking after a meeting between the chief executives of the two telecoms equipment makers and French President Francois Hollande on Tuesday, Economy Minister Emmanuel Macron said: "It's a good move for Alcatel-Lucent because it is a move for the future."

The comments come as Nokia confirmed it was in advanced talks to acquire its French rival in a deal that would create the world's second-largest producer of wireless-network equipment.

They also reflect Alcatel-Lucent's struggles to compete in a market dominated by Ericsson of Sweden and China's Huawei.

"This opens up a new phase in the life of this company," Mr Macron added. "After all the restructuring of the last two years, this is the phase of expansion."

The French group has failed to report positive free cash flow since 2005, and its market capitalisation fell by four-fifths in the eight years since its ill-fated merger with US-based Lucent Technologies in 2006.

Francois Rebsamen, labour minister, tweeted that he would be vigilant to protect jobs. "I will be particularly careful about job preservation across all the French production sites" of the company, which employs 6,000 people in the country.

But a top French telecoms executive told the Financial Times that overall the government's tone was much more positive than in previous big transactions involving French companies.

"Before, they would have demanded a long list of guarantees on a deal like this. I think they realise that it is a business in which you cannot compete if you do not have scale," he said.

Mr Macron's comments are a radical departure from the protectionist line of Arnaud Montebourg, his predecessor who exited France's Socialist government last year. Mr Montebourg had a fierce reputation, putting the brakes on US-based GE's bid for Alstom, the French energy and transport group. He also spoke out against the proposed acquisition by Switzerland-based Altice of France's SFR mobile operator.

A deal would represent a big turnround for Nokia, which just two years ago was in severe financial difficulties before selling its once world-beating mobile phone division to Microsoft.

Zaoui & Co, the London-based boutique advisory firm, is acting as sole adviser to Alcatel-Lucent, according to people familiar with the matter. Nokia is working with JPMorgan Chase, they added.

Both banks declined to comment.

Shares in Nokia recovered from heavy losses to close 3.5 per cent lower to €7.48 while Alcatel-Lucent jumped 16 per cent to €4.48.

A combined Nokia-Alcatel would have had revenues of €26bn last year, compared to Ericsson's SKr228bn (€24.4bn).

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