Nokia announces to sell devices and services unit to Microsoft

It was well expected and it happened. Nokia, through a press release, announced to sell its Devices and services business to Microsoft in an all cash transaction of EUR 5.44 billion (USD 7.18 billion).

The foundation stone of this partnership was kept back in 2011 when Nokia launched its Lumia series on the Windows Phone OS platform. The partnership did well and helped Nokia keep sailing its sinking ship in the smartphone market. Now when it has been proved as a successful partnership, Microsoft expects to give a boost to its mobile business. As of now Microsoft has only a tablet device called Surface in its portfolio of mobile devices.

Details of the transactions

Assets to be acquired

Through this deal, Microsoft will acquire Nokia’s devices and service business, including mobile and smartphone units, with the designing team, operations, production units, related sales and marketing division and the support services. A total of 32000 Nokia people are expected to shift to Microsoft through this transaction. This will include 4700 employees from Finland and 18300 employees from manufacturing and packaging of mobile devices.

Microsoft will acquire the mobile phone unit completely including the Lumia and Asha series with the right to use the Nokia brand name with for current products. However, the Nokia brand name will remain with Nokia it self. Nokia will also retain all its patents but will give Microsoft a 10 year non exclusive license to Microsoft from the day deal closes. Microsoft will also become a strategic licensee of HERE platform for four years in a separate agreement.

Business to be acquired generated a total revenue of approximately EUR 14.9 billion in 2012, contributing 50% of total net sales of Nokia. Below is a snapshot of the financials of Devices and services units (Source: Nokia Annual Report 2012):

(In EURm) 2012 2011
Sales 15,670 23,926
Operating Profit (1,100) 884
Capex 180 252
Assets 6,373 8,665

Consideration details

Microsoft will pay a total amount of EUR 5.44 billion, out of which EUR 3.79 will be dedicated to Nokia’s devices and services business and EUR 1.65 billion to 10 years non exclusive rights to Nokia patents. As an immediate action, Microsoft will provide a debt of EUR 1.5 billion to Nokia in form of three tranches of convertible notes, a type of debt which converts into equity conditionally. If Nokia decides to draw this debt, it will need to pay back from the deal proceeds upon closing.

The deal is expected to close in first quarter of 2014, subject to approval by shareholders. Google-Motorola partnership is doing great, lets see what Microsoft-Nokia partnership has to offer?

Ashwini holds the credit of being the oldest writer at 91mobiles. His love for writing forced him to ditch his white-collar investment banking job to make a career with words rather than numbers. Deeply in love with wheels, you can often find him steering on long unknown roads
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