Nokia (NOK) has reached an agreement to acquire Infinera (INFN) for $2.3 billion in order to strengthen its optical networking division. Following the announcement, INFN’s share price jumped nearly 19% in premarket trading on Friday.
Nokia, known for its 5G mobile antennas and telecommunications infrastructure, anticipates that combining forces with Infinera, a company specializing in network solutions, will accelerate its goal of achieving operating profit margins of at least 10% in the networks sector optics.
This acquisition, together with the recent divestment of its submarine cable networks, will reorient Nokia’s network infrastructure division towards fixed telephone networks, Internet protocol networks and optical networks.
The purchase price has been set at $6.65 per Infinera share, which is 28% more than Infinera’s price at market close on Wednesday. Payment will be made with a minimum of 70% in cash, while Infinera shareholders will have the option to receive the remaining amount, up to 30%, in American depositary receipts from Nokia.
The $2.3 billion valuation takes into account the repurchase of Infinera’s $760 million in convertible debt instruments. Nokia anticipates that the acquisition will be accretive to its comparable earnings per share (EPS) from the first year after completion of the transaction and anticipates an increase of more than 10% in comparable EPS by 2027.
“The acquisition not only expands Nokia’s core optical systems business, but also brings expertise in coherent digital signal processing (DSP), advanced photonic integrated circuit (PIC) technology, a suite of coherent plug-in products, and manufacturing, testing and packaging facilities located in the United States,” Stifel financial analysts said.
At the same time, these analysts have lowered their rating on INFN shares to Hold and adjusted their target price to $6.65.
“For Infinera, ongoing headwinds in the telecommunications sector pose a challenging operating environment over the medium term, although we recognize the company’s efforts to advance its new product strategy,” the analysts said.
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