NOK Rumored to Have Interest in ALU- Implications TLAB BRCM

September 26, 2013

Terrapin Note- Very much in line with our commentary coming out of the Microsoft/Nokia deal, a cash rich NOK (long 1) now essentially NSN, is reported by Reuters to be considering acquiring all or part of ALU (long 2).  Given NSN's singular focus on mobile broadband infrastructure, we view an acquisition of all of ALU as unlikely.  A sale of the wireless business is more likely, given ALU's stated focus on IP networking and optical from a growth standpoint, with wireless and wireline access managed for cash.


We view any potential sale as largely incremental to ALU's share price which even considering the recent run continues to reflect zero value for the company's wireless assets.  With a current enterprise value around $9B, we see $3B or so of value over and above the company's IP networking unit.  Considering the undersea optical and enterprise units are for sale and likely worth $1-$2B combined, this leaves $1.3B for everything else, including terrestrial optics, wireline, wireless and patents.  With a likely value of $2-$3B a deal could add as much as $1 per share or over 30% to ALU's share price.


This has become a familiar pattern, first with NOK itself selling a wireless unit valued at zero for over $2 per share and then (and currently) with OCLR selling assets valued at zero for non zero numbers.  We see other candidates in this category, that is with key units that are valued at zero, though neither with imminent sales or monetization events in our view.  With an enterprise value under $200M and an optical unit worth 3-5X that given our view of traction with Verizon at 100G we continue to believe this is the next name to see a major upward revaluation on either a fundamental or strategic basis.


A final and somewhat surprising member of this group is Broadcom.  We will go into considerably more detail in our upcoming quarterly review, in addition to reviewing a strong Q3 driven in large part by sum of parts stories such as this, as to why we believe that the company's mobile and wireless chip unit is valued at or near zero at current levels.



Exclusive: Nokia weighs Alcatel tie-up after Microsoft deal - sources

Wed Sep 25, 2013 10:06pm EDT
The flagship store of Finnish mobile phone manufacturer Nokia is pictured in Helsinki September 7, 2012. REUTERS/Sari Gustafsson/Lehtikuva
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By Nadia Damouni and Ritsuko Ando

NEW YORK/HELSINKI (Reuters) - Nokia is discussing internally whether to approach French rival Alcatel-Lucent about a tie-up, part of the Finnish company's review of how it can grow after the planned sale of its handset business to Microsoft Corp, several people close to the matter said.

No formal talks are underway with Alcatel-Lucent, the sources said. One of the people close to the matter said Nokia held "on again, off again" discussions about buying Alcatel's wireless business as recently as late 2012 and that the two companies could still come back to the table.

Speculation over a combination between Nokia and Alcatel-Lucent goes back several years, as both have struggled to compete with market leader Ericsson and low-cost Asian network equipment rivals Huawei and ZTE.

Microsoft announced on September 3 that it will buy Nokia's phone business and license its patents for 5.44 billion euros ($7.3 billion). Nokia has said it will evaluate strategy for its remaining operations before the deal closes. Those businesses include a mapping software unit called HERE and a portfolio of patents.

The Finnish phone maker once dominated the global market but has had its mobile business ravaged by nimbler rivals Apple Inc and Samsung Electronics.

Nokia, under the leadership of interim CEO Risto Siilasmaa, has already begun internal discussions on future strategy, the sources said, adding that a decision could be months away.

All the sources asked not to be identified because they were not authorized to speak with the media.

Representatives for Nokia, its network equipment unit, Nokia Solutions and Networks, and Alcatel-Lucent declined to comment.   Continued...