Morgan Stanley On Alcatel: Asset Sale To Nokia Could Be Transformative

Morgan Stanley on Tuesday issued a company note on Alcatel Lucent SA (ADR) (NYSE: ALU) after reports that Nokia Corporation (ADR) (NYSE: NOK) is in advanced discussions with Alcatel to buy its wireless business. Morgan Stanley rates Alcatel as Overweight while a price target is unavailable.

Analysts Francois A Menuier and Andrew Humphrey wrote, "such a deal could be positive for Alcatel, as Wireless lacks scale globally despite its strong position in the US. In addition, the unit has lost money in previous years, though management has said it is bringing it to breakeven this year….Bloomberg also states that a full merger with Alcatel has been discussed but reported that a wireless asset sale is currently the most likely deal."

Morgan Stanley believes that this deal could make Alcatel a 11-12 percent EBIT margin market share gainer, while allowing it to retain strong IP routing positioning with less earnings volatility.

Morgan Stanley's 4 Things Nokia-Alcatel Investors Should Look For:

1. The size of the U.S. pension fund and OPEB transferred to Nokia.
2. The number of French employees that will be part of the transaction.
3. Cash considerations in the China JV Alcatel Shanghai Bell.
4. Whether small cells be part of the deal.

Alcatel is showing strength in Tuesday's trading on news of the possible asset sale.

Shares of Alcatel recently traded at $4.76, up 9.5 percent.

Shares of Nokia traded at 47.97, down 4 percent.