Nokia has struck a 15.6-billion-euro deal to buy its rival Alcatel-Lucent to create the world's biggest supplier of mobile phone network equipment, both firms said Wednesday.
The merger of two companies that were once new technology stars but have since lost some of their luster will produce a European champion able to take on Nokia's Swedish rival Ericsson or fierce Chinese competition.
The announcement sent shares in Alcatel-Lucent plunging more than 10 percent on Paris's stock market, while Nokia's stocks rose 1.8 percent to 7.62 euros on the Helsinki market.
Finland's Nokia said it had agreed to give shareholders in its Franco-American rival 0.55 shares in the new merged company for every one of their own.
"This transaction comes at the right time to strengthen the European technology industry," said Alcatel-Lucent boss Michel Combes.
"The global scale and footprint of the new company will reinforce its presence in the United States and China," he added.
The two firms have "highly complementary portfolios and geographies, with particular strength in the United States, China, Europe and Asia-Pacific," Nokia's statement said.
The new firm will go by the name Nokia, be based in Finland, and be run by Nokia's current management team, it said.
The group is targeting savings of 900 million euros ($960 million) in costs by the end of 2019 without further job cuts on top of the restructuring already taking place in Alcatel-Lucent, both companies said.
This is likely to appease the French government, which had expressed concern about jobs disappearing in the country if the merger were to go through.
It has also in the past blocked takeovers of companies it considers national jewels.
The government caused a furore in 2013 when it blocked a bid by US giant Yahoo! to acquire Dailymotion, and then again this month when it thwarted attempts by a Hong Kong telecoms giants to acquire the video-sharing site.
- Not 'losing Alcatel' -
Jean-Marie Le Guen, a member of the Socialist government, told French radio that France was not "losing Alcatel" and told employees that the government would make sure they kept their jobs.
But "they must also know that if this merger didn't happen, then maybe one day, Alcatel would not have been big enough to take on the international (market)," he said.
"If you watch the trains go by, you stay on the platform."
Both companies said that the merger should save an additional 200 million euros in financial charges.
Combes told French TV channel BFM Business that the new group was committed to "increasing R&D activities in France by 25 percent" by hiring 500 additional researchers, bringing the total research and development workforce in the country to 2,500.
"The new group's innovation and research capabilities on a global scale will be spearheaded in France," he said.
Rumours have swirled since December of a possible deal between the two firms, with France's Les Echos daily reporting on Monday that executives had been in negotiations since January.
Nokia was the world's biggest mobile phone maker for more than a decade until it was overtaken by South Korea's Samsung in 2012.
Then in 2014, Nokia sold its mobile phone and tablet division to US software giant Microsoft, and the company now develops mobile and Internet network infrastructures for operators.
Nokia is now set for a significant boost in market share.
The deal will also help Nokia bolster its mobile infrastructure business against Swedish arch-rival Ericsson and China's Huawei, profiting from Alcatel's position as a leading supplier of 4G and LTE mobile networks and related services.
Deutsche Bank analyst Johannes Schaller said: "We see several risks for Nokia from this deal, if concluded, and believe integration could be challenging both from a product and culture perspective."
"We believe Ericsson could be the indirect beneficiary of this possible consolidation," added Schaller.