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Finnish telecommunications major Nokia Corporation will be acquiring California-based telecommunication equipment company Infinera Corporation for $2.3 billion in a bid to scale up its optical business, the company announced on Thursday.

Infinera’s stock rose 18% after the deal announcement.

Infinera deals in manufacturing of open optical networking solutions and optical semiconductors. The acquisition will help Nokia scale up its optical business, especially in the North American market, and enable the company to achieve a double-digit operating margin in the division. 

The deal has gained approval from the two companies’ boards of directors and is expected to close during the first half of 2025.

Nokia will be acquiring Infinera in a transaction valued at $6.65 per share or $2.3 billion.

The transaction represents a premium of 28% to Infinera’s share price at the close of June 26, 2024 and a 37% premium to the trailing 180-day volume weighted average price (VWAP), Nokia said in a statement. 

At least 70% of the transaction amount will be paid by Nokia to Infinera in cash. Infinera’s shareholders can elect to receive up to 30% of the aggregate consideration in the form of Nokia’s American Depository Shares, Nokia said. 

The deal will increase the scale of Nokia’s optical networks business by 75% and help it increase its presence in the North America region as 60% of Infinera’s sales come from there, Nokia said.

 Pekka Lundmark, president and CEO of Nokia, said:

In 2021 we increased our organic investment in Optical Networks with a view to improving our competitiveness. That decision has paid off and has delivered improved customer recognition, strong sales growth and increased profitability. We believe now is the right time to take a compelling inorganic step to further expand Nokia’s scale in optical networks. The combined businesses have a strong strategic fit given their highly complementary customer, geographic and technology profiles. With the opportunity to deliver over 10% comparable EPS accretion, we believe this will create significant value for shareholders.

Nokia also expects the deal to accelerate its strategic goal of diversifying its customer base and increasing exposure to webscale customers, the fastest growing segment of the market with webscale forming 30% of Infinera’s sales.

Infinera has also recently started developing high-speed and low-power optical components for use in intra-data center (ICE-D) applications, which, with their application in AI workloads could provide Nokia with an attractive long-term growth opportunity, Nokia said. 

Nokia has outlined that the transaction is projected to be accretive to its comparable operating profit and earnings per share (EPS) in the first year following the close. 

By 2027, the company expects to achieve over 10% comparable EPS accretion and targeted net comparable operating profit synergies of EUR 200 million

Infinera’s stock rose 18% after the deal announcement on Thursday in line with an expected positive market reaction. 

Experts advised investors to monitor the integration progress and synergy realization.

According to Investing.com, in terms of profitability, Infinera has not been profitable over the last twelve months, with a P/E Ratio of -15.26, further adjusted to -16.89 for the same period.

However, analysts predict the company will turn profitable this year, which may have been a contributing factor to Nokia’s acquisition decision, as it could signal potential for future earnings growth that Nokia can capitalize on.  

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