The all-stock deal values the French firm at €15.6 billion ($16.6 billion). The combined company will be called Nokia Corporation, with headquarters in Finland.
Alcatel (ALALF) shareholders will be paid 0.55 Nokia (NOK) shares per Alcatel share, a 28% premium over the company's three-month weighted stock price.
Both firms provide equipment, infrastructure and support to the telecommunications industry. Alcatel shareholders will own 33.5% of the combined company.
The marriage between Nokia and Alcatel should give the combined company more clout when competing with rivals like Sweden's Ericsson (ERIC) and China's Huawei.
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Nokia, which sold its handset unit to Microsoft last year, has a market capitalization of about €27.7 billion ($29.5 billion). Alcatel is less than half the size, with a market value around €12.6 billion ($13.4 billion).
Nokia was once a giant in the mobile phone industry but was clobbered by Apple (AAPL, Tech30) and Samsung (SSNLF). Nokia shares hit a peak in 2007 and then tanked.
Since selling its mobile phone business to Microsoft, the company has refocused on its telecommunications and broadband offerings.
CNNMoney (Hong Kong) April 15, 2015: 2:45 AM ET