Inside the Microsoft-Nokia Acquisition


05 September 2013

On the 3rd of September, Microsoft and Nokia entered one of the biggest business deals we’ve seen recently in the mobile space: Microsoft is buying almost all Nokia devices, its business services, licenses and patents. According to the terms of the transaction, Microsoft is going to pay 3.79B EUR for company’s devices and business services, and also 1.65B EUR for the licenses and patents. The total transaction is valued at 5.44B EUR, cash. Microsoft tapped its offshore financial reserves for this one. It is expected that the transaction will be fully completed by the first quarter of 2014, on condition of its approval by Nokia shareholders and various regulatory authorities. Relying on its partnership with Nokia from February 2011, Microsoft is making this move to force its way into a larger share of the mobile market at the cost of quick innovation, united branding and marketing. This transaction will become a mechanism that will help the company gain its footing in the mobile market and lay the groundwork for future investments in this space.

Here are some thoughts regarding the transaction between Microsoft and Nokia.

Steve Ballmer, the outgoing CEO of Microsoft has stated: 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. 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.”

Risto Siilasmaa, Nokia board chairman and now temporary CEO: For Nokia, this is an important moment of reinvention and from a position of financial strength, we can build our next chapter. After a thorough assessment of how to maximize shareholder value, including consideration of a variety of alternatives, we believe this transaction is the best path forward for Nokia and its shareholders. Additionally, the deal offers future opportunities for many Nokia employees as part of a company with the strategy, financial resources and determination to succeed in the mobile space.”

Stephen Elop, the former president of Nokia: "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. 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."

Let’s talk terms. According to the terms of the agreement, Microsoft gains almost all Nokia devices and business services, which includes mobile phones and smartphones for business units, and also engineering and operation areas including all Nokia devices and objects related to production, devices and services associated with sales and marketing. Altogether, Microsoft will gain about 32.000 new employees, including 4.700 people in Finland, and 18.300 workers who are directly involved in manufacturing, fitting, packing, and overall production worldwide. The total future value that Microsoft stands to gain amounts to some 14.9B EUR - almost 50% of Nokia’s net sales for the the entire year of 2012.

Take note: Microsoft gets all the new smartphone lines, including the Lumia brand, which has earned numerous awards, and has seen growing sales for the last three quarters. In the second quarter of 2012, sales reached 7.4M units.

However, the transaction includes the condition that Nokia must give Microsoft a long-lasting patent, its Qualcomm licensing agreement, and other licensing agreements as well. Microsoft also gets Nokia mobile phones and operations which serve hundred millions of clients all over the world, with sales amounting to 53.7M units in the second quarter of 2012. Microsoft is also buying the Asha brand. Nokia will keep its network of patents, but will provide Microsoft with a 10-year license for its patents. Microsoft will provide Nokia with mutual rights to use Microsoft patents. In addition, Nokia will provide Microsoft with the option to extend this mutual agreement for an indefinite period. Microsoft will also become a strategic license holder and will pay Nokia separately for the four-year license.

Microsoft will immediately open up 1.5B EUR for Nokia as a provision of finance. The main office of the purchased company will be situated in Finland. Microsoft has also declared intent to invest in a new data processing center in the near future.

Of course, the executive group will be also changed. Nokia expects that Stephen Elop, Jo Harlow, Juha Putkiranta, Timo Toikkanen and Chris Weber will go to Microsoft, but the detailed information will be published in a separate release. The general meeting of shareholders Nokia is planned for November 19, 2013. It has been announced that further announcements and more-detailed information on the acquisition will be published at the end of this month.