Nokia will give Alcatel-Lucent shareholders 0.55 shares in the combined company for each of their old shares, resulting in 33.5 percent of the entity being in Alcatel’s hands and Nokia having 66.5 percent if the public exchange offer is fully taken up.
The deal will be finalised in the first half of 2016, the companies said.
The takeover will help the companies better take on mobile leader Sweden’s Ericsson and cut costs amid weak growth prospects in the telecom gear industry.
The combined firm will have a global wireless market share of 35 percent, second only to Ericsson with 40 percent, and ahead of China’s Huawei at 20 percent, according to Bernstein Research.
Nokia shares fell as much as 7 percent on Tuesday after its interest in the loss-making Alcatel-Lucent was announced, while the French firm leaped 16 percent.
The two have been seen as a possible combination for the last several years as they are a good fit in terms of products and geographies.
The combined company will have about 114,00 employees and combined sales of around 26 billion euros.
Nokia sold its once-dominant handset business last year after struggling to compete with smartphones by Apple and Samsung. That deal left it with the network unit, a smaller map unit and a bunch of technology patents.