Finnish network equipment maker Nokia said on Wednesday it had agreed to buy Alcatel-Lucent in an all-share transaction that values the smaller French rival at €15.6 billion.

Nokia will give Alcatel-Lucent shareholders 0.55 shares in the combined company for each of their old shares, resulting in 33.5 per cent of the entity being in Alcatel’s hands and Nokia having 66.5 per cent 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 per cent, second only to Ericsson with 40 per cent, and ahead of China's Huawei at 20 percent, according to Bernstein Research.

Nokia shares fell as much as 7 per cent on Tuesday after its interest in the loss-making Alcatel-Lucent was announced, while the French firm leaped 16 per cent.

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 114,000 employees and combined sales of around €26 billion.

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.

Reuters