Microsoft to buy Nokia’s mobile unit

November 2013 | FEATURE | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

Microsoft Corporation has agreed to a buy Nokia Corporation’s mobile phone business for $7.2bn. The deal, announced on 3 September, will see Microsoft purchase Nokia’s Devices and Services business, licence Nokia’s patents for a 10 year period and licence and utilise Nokia’s mapping services in its future mobile telephones.

Under the terms of the deal Microsoft will pay €3.79bn to purchase the Devices and Services business, and €1.65bn for the licences. Both parties expect the deal to be completed in the first quarter of 2014, provided it is approved by Nokia’s shareholders, wins the customary regulatory approvals, and meets other standard closing conditions.

The loss of Nokia’s formerly dominant mobile phone business is a particularly bitter development for the company’s dwindling base of supporters. According to a statement released by Nokia, the operations to be transferred to Microsoft generated around €14.9bn during 2012, a figure which accounted for almost half of Nokia’s net sales. Once the deal has been completed, the Nokia that is left behind will be markedly different from the one that preceded it. According to a company statement, Nokia will retain its headquarters in Finland where it will concentrate on three core businesses: it’s Here Maps navigation system; the Nokia Solutions and Network unit, which Nokia formed when it bought out Siemens’ share of the joint venture Nokia Siemens Networks earlier in the year; and its Advance Technologies unit. The Nokia Solutions and Network division will now be responsible for around 90 percent of Nokia’s revenue. The company will continue to employ around 56,000 people worldwide.

The deal to transfer Nokia’s mobile business to Microsoft comes around two years after the two companies entered into a software partnership aimed at revitalising Nokia’s standing in the global mobile phone market. In February 2011 Nokia announced that it was embracing Microsoft’s Windows Phone software, making it available on the company’s new Lumia smartphones. On the back of the software partnership sales of the Lumia have helped the market share of Windows Phones to climb to 3.3 percent, according to data published by information technology research and advisory firm Gartner. Although Windows Phones surpassed BlackBerry Ltd’s market share for the first time in 2013, the use of Microsoft’s mobile operating system still trails Android and iOS – Google and Apple enjoy over 90 percent of the market.

In response to the deal announcement, shares in Microsoft fell around 6 percent, wiping approximately $15bn off the company’s market value. Investors were not enthusiastic about the decision to acquire a business that itself lost more than $4bn during 2012.

Once the deal has been completed, Nokia expects around 32,000 of its 90,000 staff members to transfer to Microsoft, including around 4700 employees who will transfer in Finland. “It’s a bold step into the future – a win-win for employees, shareholders and consumers of both companies. Bringing these great teams together will accelerate Microsoft’s share and profits in phones, and strengthen the overall opportunities for both Microsoft and our partners across our entire family of devices and services,” said Steve Ballmer, Microsoft’s outgoing chief executive. “In addition to their innovation and strength in phones at all price points, Nokia brings proven capability and talent in critical areas such as hardware design and engineering, supply chain and manufacturing management, and hardware sales, marketing and distribution.”

Nokia’s chief executive Stephen Elop has emerged from the deal as a divisive figure. Mr Elop ran Microsoft’s business software division before leaving the company to take up the chief executive post at Nokia. As a result of Microsoft’s acquisition of Nokia’s phone business, Mr Elop will return to Microsoft, leading the company’s business software division. Mr Elop is also in the running to replace Mr Balmer as the chief executive of Microsoft, despite overseeing the collapse of both Nokia’s market share and the company’s share price. Analysts and journalists in Nokia’s homeland of Finland have likened Mr Elop to a Trojan horse, delivering a once great European superpower into foreign hands.

At the height of its popularity over a decade ago, Nokia’s market value topped $200bn. While news of the company’s sale saw Nokia’s share price rocket 34 percent to €3.97, in real terms the company is worth just €15bn, a mere fraction of its former value. With the sale of its mobile phone unit, the remnants of the company will focus on its networking equipment unit, navigation business and technology patents. “Building on our successful partnership, we can now bring together the best of Microsoft’s software engineering with the best of Nokia’s product engineering, award-winning design, and global sales, marketing and manufacturing,” said Mr Elop. “With this combination of talented people, we have the opportunity to accelerate the current momentum and cutting-edge innovation of both our smart devices and mobile phone products.”

Richard Summerfield