Shares of Nokia Corp. (NYSE: NOK) took it on the chin after the Finnish (and French) mobile and communications equipment maker warned of compliance issues at its Alcatel-Lucent business in a filing with the U.S. Securities and Exchange Commission (SEC). It was carrying out an internal investigation, and it had voluntarily reported the matter in the regulatory filing.
After the $17 billion or so Alcatel-Lucent merger in 2016, Nokia said in its SEC filing that it had been made aware of certain practices relating to compliance issues at the former Alcatel-Lucent business that raised concerns. No financial detail nor any expected penalties were mentioned in the filing, but the company decided to issue a press release to clarify the situation and to defend itself.
The company said that its investigation is not expected to have a material impact. While Nokia does not typically comment on market rumors, it issued the press release due to the market reaction and inquiries related to a disclosure in the risk factors section of its 2018 annual report.
The company’s statement is an effort to clarify that the specified investigation is not expected to have a material impact on Nokia:
We have seen no evidence that would suggest that criminal penalties would apply in this case, and we believe it is highly likely that any penalties that might apply would be limited and immaterial… Nokia wishes to clarify that the context of this disclosure is the risk factors section of its annual report on Form 20-F where the company lists various risks which could potentially have a material impact on it. However, the disclosure does not reflect Nokia’s assessment of the expected or likely impact of the investigation on Nokia.
The company further clarified that it is scrutinizing certain transactions in the former Alcatel Lucent business for compliance purposes. Nokia further noted:
Out of an abundance of caution and in the spirit of transparency, Nokia has contacted the relevant regulatory authority regarding this review. We are proud of our reputation as one of the world’s most ethical companies and this level of openness, transparency and cooperation is what you would expect from Nokia. For audit purposes, the overall group materiality is defined as EUR 125 million as disclosed in Nokia’s annual report for 2018.
Nokia’s American depositary shares were down over 7.6% at $5.78 prior to it issuing this defense, after a prior closing price of $6.26, and those shares then rose to $5.95 after the release. Its consensus price target was $7.18, and its New York-listed shares have a 52-week trading range of $5.07 to $6.65.