When Nokia (NYSE:NOK) announced that it would be acquiring Alcatel-Lucent (NYSE:ALU), a curious thing happened: Both stocks fell.
This sent a bad signal that large investors in both companies didn't like the deal. It's also extremely rare. The typical pattern in a public-market acquisition is for the shares of the acquiree to rise. The Boston Consulting Group says the historical average premium for the acquired company is 34%. So what gives?
A big factor in the selling of shares after the deal was Nokia investors, according to some sources. Many of the Nokia shareholders were interested in owning Nokia for the intellectual property benefits of Nokia's Advanced Technologies divions, which has been talked about as a spinoff. Another telecom equipment merger didn't do much for them.
"Many of the people that owned NOK only cared about intellectual property licensing revenues and the bull case that NOK can get more Chinese handset players to pay it," said Michael Genovese, Managing Director at MKM Partners, when I inquired by email. "They don't feel great about telecom equipment so they are getting out of the stock."