Nokia: Going...Going...Going.....

....As Microsoft Acquires Nokia’s Mobile Phone Business

Just as the football world was stunned at Arsenal Football Club of England’s record signing of Metsu Ozil at transfer deadline day, the technology world woke up this morning to hear that Microsoft has agreed to acquire the mobile phone business of Nokia for EUR 3.79 billion. In addition it will pay EUR 1.65 billion to license Nokia's patents, bringing the total value of the deal to EUR 5.44 billion in cash. 

Nokia’s takeover follows its decision in early 2011 to adopt Microsoft's Windows software for its smartphones. Microsoft said the takeover will allow it to accelerate the growth in Windows and expand its share of the mobile phone market, through faster innovation, increased synergies, and unified branding and marketing. It will continue to license Windows Phone to third parties as well. 

Pending approval by Nokia's shareholders and regulators, the deal is expected to close in the first quarter of 2014. Microsoft will finance the takeover from its existing cash. 

The acquisition includes all of Nokia's Devices and Services business, including the Mobile Phones and Smart Devices business units and their design teams, production facilities, sales and marketing activities, and related support functions. Approximately 32,000 employees are expected to transfer to Microsoft, including 4,700 people in Finland and 18,300 employees directly involved in manufacturing products worldwide. The operations generate around EUR 14.9 billion in revenues, or almost 50 percent of Nokia's sales for 2012. 

Microsoft will take over Nokia's long-term patent licensing agreement

with Qualcomm, as well as other licensing agreements. Microsoft also will acquire the Lumia brand associated with Windows smartphones, as well as the Asha brand for low-end smart devices. Nokia will retain ownership of the Nokia name and license it to Microsoft, although Microsoft said it aims to move to a unified branding as soon as possible. Nokia will not be allowed to use its own name on mobile devices until 2016 at the earliest.

Nokia also holds on to its patent portfolio, to which Microsoft receives a 10-year non-exclusive licence and an option for a licence in perpetuity. Microsoft will grant Nokia rights to use Microsoft patents in its Here location services, and Microsoft will become a strategic licensee of the Here platform and will separately pay Nokia for a four-year licence. 

Nokia CEO Stephen Elop and top executives Jo Harlow, Juha Putkiranta, Timo Toikkanen and Chris Weber will move to Microsoft as part of the deal, taking up similar roles there. Elop will become head of Microsoft's Devices and Studios business, which also includes the Xbox and Surface tablet. Elop will step down from Nokia's board and head the mobile phone business until the transaction is completed, while Nokia's chairman Risto Siilasmaa takes over as interim CEO. 

The sale leaves Nokia with network equipment maker NSN, the Here activities and its patent portfolio. The company's board plans a strategic review before completing the Microsoft transaction to chart Nokia's course going forward. It pledged to return the company to an investment-grade debt rating and distribute any excess cash after the deal to shareholders. In addition to boosting its earnings, the sale of the loss-making mobile phone business will result in a one-time gain of EUR 3.2 billion before tax.

As part of the deal, Microsoft will provide Nokia EUR 1.5 billion in financing, as three EUR 500 million tranches of convertible notes. If Nokia decides to draw down on this option, it would be paid back from the proceeds of the deal upon closing. 

As part of its investment in Finland, Microsoft also announced it will build a new data centre there to support consumer customers in Europe. Construction and operations of the centre will require an investment of over USD 250 million in the coming years.