A lot of analysts have soured on the merger of Alcatel-Lucent S.A. (NYSE: ALU) and Nokia Corp. (NYSE: NOK). 24/7 Wall St.’s own take on the merger was that Alcatel-Lucent was selling long-term shareholders down the river. Standard & Poors, or S&P, which is evaluating the merger from a credit perspective, not an equities perspective, sees the combined companies in a positive light.

For some background on the merger, telecommunications equipment supplier Alcatel-Lucent announced that it will merge with Nokia in an all-share transaction valuing Alcatel-Lucent at about €15.6 billion (around $16.8 billion). As part of the transaction, S&P expects Alcatel-Lucent’s outstanding convertible bonds will be converted into equity and exchanged with newly issued ordinary shares of Nokia.

Nokia has indicated it intends to fund the transaction by issuing new equity. After the transaction, Alcatel-Lucent shareholders will own about 33.5% of the new entity. Both boards of directors have approved the merger, but the deal remains subject to regulatory and shareholder approval.

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In S&P’s view, the combined entity will have a more diversified business portfolio and stronger financial risk profile, compared with Alcatel-Lucent’s on a stand-alone basis. As a result, the firm placed its B long-term ratings on Alcatel-Lucent and its subsidiary Alcatel-Lucent USA Inc. on CreditWatch positive.

S&P views Nokia’s proposed merger with Alcatel-Lucent overall as potentially credit-positive in the medium term. Therefore the firm raised its long-term corporate credit rating on Nokia to BB+ from BB. Also note that this is because Nokia reported better results than S&P expected in 2014, and S&P believes this likely will continue in 2015.

In fact, this positive outlook reflects the potential for a one-notch upgrade if the combined entity is able to demonstrate revenue growth about in line with the industry.

According to S&P’s report, the firm has a positive view on the merger:

In our view, the combined entity will have a more diversified business portfolio and stronger financial risk profile compared with Alcatel-Lucent’s on a stand-alone basis. The combined group will be one of the market leaders in wireless, fixed-line access, internet protocol (IP) routing and fiber optics transmission, and core network technologies. In addition, despite potential near-term integration challenges and restructuring costs, the enlarged group’s profitability is poised to benefit from sizable cost synergies in the next few years, particularly for research and development (R&D) expenses in wireless operations.

In 2016, S&P expects that the combined entity will generate pro forma revenues exceeding €27 billion. Furthermore, the combined entity had a pro forma strong net cash position of €7.4 billion at year-end 2014, compared with €1.6 billion for Alcatel-Lucent on a stand-alone basis.

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Midday Friday, shares of Nokia were down 1.2% at $7.68, in a 52-week trading range of $7.00 to $8.73. The stock has a consensus analyst price target of $9.18.

Alcatel-Lucent shares were down 0.3%, at $3.95 in a 52-week trading range of $2.28 to $4.96. The consensus price target is $4.45.

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