Nokia and Siemens have agreed to combine the bulk of their telecom equipment businesses to create one of the biggest players in the industry sending shares in both firms higher.
The units in the venture "Nokia Siemens Networks" had sales of . billion euros ($ billion) last year which would make it the second biggest mobile equipment player and third in fixed infrastructure the companies said on Monday.
Siemens shares jumped . percent to . euros by GMT while Nokia was up . percent at . euros.
No money will change hands between the German and Finnish parents in the deal which will put the new group in the same league as current industry leader Cisco Systems Inc. and the merged AlcatelLucent by sales.
The combination of Nokia's networks unit and the Siemens carrier business in fixed and mobile networks will offer some savings and up to jobs are expected to be cut.
"The merger gives Nokia and Siemens scale they couldn't get otherwise. You're going to be able to get rid of a lot of people basically. They share common markets" said analyst Ed Snyder of Charter Equity Research.
The deal will also provide scale to operations which have suffered from fierce price competition in the fight for orders from the big telecoms operators as the industry consolidates.
"I like the idea but I think it's risky" said Nomura analyst Richard Windsor.
"On the wireless side Nokia is subscale and putting them together will help. But in wireline Nokia has no business whatsoever and it's now being tasked with turning around a business that Siemens failed to do over the last six years."
Siemens has been searching for years for a solution for its telecoms equipment unit Com after offloading its lossmaking mobile phones division to Taiwan's BenQ last year.
The unit made an operating profit of million euros last fiscal year or . percent of its sales of . billion euros.
Nokia and Siemens said they both expect to boost their earnings per share by the end of on a proforma basis excluding restructuring charges which they did not detail.
The firms expect cost synergies of . billion euros annually by and said they would cut to percent of the new business's combined workforce of over four years.
"We believe the partnership with Siemens is the most effective way to build the scale and broad product portfolio necessary to compete globally" Nokia Chief Executive OlliPekka Kallasvuo said in a statement.
Analysts said they did not expect any major difficulties with regulators.
Nokia executives have emphasised in recent months they are open to acquisitions as well as joint venture deals to boost the company's position in various markets. But Nokia has shied away from major takeovers despite sizeable cash reserves which stood at billion euros at the end of March.
The Siemens deal echoes a joint venture deal the Finnish group struck in February with Japanese electronics firm Sanyo Electric Co. to make handsets based on the CDMA mobile standard.
Nokia Siemens Networks will have its headquarters in Nokia's home country of Finland and be headed by Simon BeresfordWylie who currently heads Nokia's networks division. It will also have regional headquarters in Siemens' home city of Munich and Peter Schoenhofer will be chief financial officer.
Infrastructure gear makers have come under increasing pressure from Asian rivals like Huawei.
Nokia and Siemens will hold a news conference at GMT and a conference call for analysts at GMT.