Major Alcatel-Lucent shareholder calls deal 'unacceptable'

Alcatel-Lucent's second-largest shareholder has criticised the €15.6bn sale of the French telecoms equipment group to Nokia as "unacceptable".

Odey Asset Management, the investment group, said the offer from the Finnish group undervalued the company. Odey's funds own more than 5 per cent of Alcatel-Lucent's stock.

"The deal has been dressed up as a takeover of Alcatel by Nokia," the fund manager said in a quarterly update to its investors. "In reality the premium they are offering has the hallmarks of a merger. We therefore find the terms of the deal unacceptable."

In a filing last week to the French financial regulator, Odey said that it would not tender its shares under the existing terms of the offer from Nokia.

But the investment group is unlikely to be able to affect the outcome of the deal because Alcatel shareholders will not vote on the deal, and just 50 per cent of Alcatel's shares need to be tendered.

Nokia shareholders will vote to approve the transaction.

The position is striking given that the French government has actively supported the deal. One person close to the companies said that other shareholders had been supportive of the acquisition, which will create a stronger European telecoms equipment group to compete with Ericsson of Sweden and China's Huawei.

Odey also admitted that there was "strategic logic", saying that a "combined entity would create a stronger company with material synergy opportunities".

Alcatel, Nokia and Odey declined to comment.

The all-share offer from Nokia values Alcatel-Lucent at €15.6bn, reflecting a premium of 28 per cent on the average share price for the three previous months. Each company's board of directors has approved the terms of the proposed transaction, which is expected to close in the first half of 2016.

The management teams of Nokia and Alcatel-Lucent have been on global road shows over the past two weeks to explain the deal to shareholders. Some analysts have been concerned about potential problems integrating the two businesses. Alcatel-Lucent and Nokia were both created following costly, drawn-out integration processes.

The integration of the two companies is expected to cost about €900m, which executives have argued is reasonable. The merger is expected to result in annual cost and revenues savings of about €900m.

Nokia and Alcatel-Lucent have also sought to add more detail to the rationale behind the acquisition to investors. The companies have stressed the need to combine research on 5G technology to keep ahead of rivals.

Analysts have questioned why Nokia did not just acquire the wireless business from Alcatel-Lucent, but company executives have argued that there would have been difficulties in separating the operations given shared contracts with customers. Nokia was also won over by the progress made in other parts of Alcatel's operations, according to one person close to the discussions.

Nokia has not yet decided where it will implement the job cuts but has appointed executives to oversee the process. Nokia has promised to protect jobs in France in particular to win over support from the government in Paris, however cutting staff in Finland would also be unpopular in its home market.

Odey's criticisms come amid a wider debate in France on the issue of shareholder power. One area of concern is the so-called Florange law, which will automatically grant double voting rights from 2016 to shares registered for more than two years unless two-thirds of shareholders vote to overturn it.

Additional reporting by Miles Johnson and Adam Thomson

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