Nokia (NOK) has agreed to acquire Infinera (NASDAQ:) for $2.3 billion to strengthen its optical networking business. The announcement sent INFN shares up nearly 19% in premarket trading Friday.
Nokia, known for its 5G cellular antennas and telecom infrastructure, expects its merger with network solutions provider Infinera to accelerate its goal of achieving double-digit operating margins in the optical networking sector.
The deal, along with the recent sale of undersea networks, will transform Nokia’s network infrastructure business, focusing on fixed-line networks, Internet Protocol networks and optical networks.
The deal is valued at $6.65 per share, a 28% premium to Infinera’s closing stock price on Wednesday. At least 70% of the amount will be paid in cash, with Infinera shareholders having the option to receive up to 30% of Nokia’s American depositary shares.
The $2.3 billion valuation includes the repurchase of $760 million of Infinera convertible notes. Nokia expects the acquisition to be accretive to its like-for-like earnings per share (EPS) in the first year after the deal closes, and forecasts more than 10% like-for-like earnings per share growth by 2027.
“In addition to increasing the scale of Nokia’s core optical systems business, INFN adds expertise in coherent digital signal processing (DSP), powerful photonic integrated circuit (PIC) technologies, a portfolio and roadmap of coherent connected products, and manufacturing, testing and packaging in USA. “, Stifel analysts commented.
At the same time, analysts downgraded INFN shares to Hold and lowered their target price to $6.65.
“For INFN, we believe ongoing challenges in the telecom vertical have created a challenging medium-term operating environment, even as the company, in our view, has executed on its new product strategy,” the analysts wrote.