Finnish networking giant Nokia Corp. has announced plans to acquire Infinera Corp. in a $2.3 billion deal that’s intended to help grow its optical networks business.

The company, which makes telecommunications infrastructure such as 5G cellular antennas, said today that the acquisition of Infinera will help speed up its optical networks businesses’ path towards double-digit operating margins. The deal, which comes in the wake of Nokia’s decision to sell its undersea internet cable business to France, paves the way for the company to reshape its networking infrastructure business around fixed networks, IP networks and optical networks.

Nokia has agreed to pay $6.65 per share to acquire Infinera, which represents a 28% premium on that company’s stock price at market close on Wednesday. It said at least 70% of the bid will be paid in cash, with Infinera shareholders given the option of receiving up to 30% in the shape of Nokia’s American depositary shares.

The deal is valued at $2.3 billion overall, including the repurchase of the $760 million in convertible notes owned by Infinera.

Nokia President and Chief Executive Pekka Lundmark said the company took a strategic decision to increase its organic investment in its optical networks business in 2021, in order to boost its competitiveness.

“That decision has paid off and has delivered improved customer recognition, strong sales growth and increased profitability,” he said. “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.”

Nokia listed a number of “compelling benefits” for itself, Infinera and their customers, saying the deal would improve the global scale of its optical networks business by as much as 75%, while enabling it to accelerate its product roadmap and more sustainably challenge its competitors.

For instance, the combined entity will gain significant in-house capabilities, such as an expanded digital signal processor development team, more expertise in areas such as silicon photonics and indium phosphide-based semiconductor material sciences, and greater competency in photonic integrated circuit technology.

Constellation Research Inc. analyst Holger Mueller said the acquisition is a very smart, forward-looking bet by Nokia on the long-term importance of optical networks, which sit at the heart of what he called the “era of infinite connectivity”. He said that these days, people have come to expect that they can connect with anyone, anywhere on the planet over a high-quality video feed that enables seamless interactions.

“Behind this reality are billions of dollars in investments in web connectivity, and one of the key technologies for this is optical networks,” Mueller said. “Building these optical networks requires a lot of very specific expertise.”

According to the analyst, Infinera is one of the few companies in the world that possesses that expertise, which is why it has become a target for Nokia, which wants a slice of the optical networks pie.

“Nokia wants this so much that it’s giving up another very lucrative business in the undersea cable industry,” Mueller added. “That business is booming too, with record amounts of undersea cables being laid these days, but it is a more competitive and somewhat less future-proof industry. So Nokia’s acquisition of Infinera makes sense, and should help it to increase its importance as a key vendor in the era of infinite connectivity.”

Nokia said the deal will be accretive to its comparable earnings per share in the first year after closing on the acquisition, delivering over 10% EPS accretion by 2027.

To offset dilution from the acquisition, Nokia’s board has voted to increase and accelerate its share buyback program.

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