Microsoft to buy Nokia for Euro 5.44 bn

Nokia today announced that it has signed an agreement to enter into a transaction whereby Nokia will sell substantially all of its devices & services business and licence its patents to Microsoft for EUR 5.44 billion in cash, payable at closing.

Nokia expects to book a gain on sale of approximately EUR 3.2 billion, and expects the transaction to be significantly accretive to earnings.

Subject to the closing of the transaction, Microsoft will acquire substantially all of Nokia’s Devices & Services business, including the mobile phones and smart devices business units as well as an industry-leading design team, production facilities,  sales and marketing activities, and related support functions.

At closing, approximately 32,000 people are expected to transfer to Microsoft, including approximately 4,700 people in Finland.

The operations that are planned to be transferred to Microsoft generated an estimated EUR 14.9 billion, or almost 50 percent, of Nokia’s net sales for the full year 2012.

As part of the transaction, the Finish company will grant Microsoft a 10 year non-exclusive license to its patents as of the time of the closing, and Microsoft will grant Nokia reciprocal rights related to HERE services.

In addition, Nokia will grant Microsoft an option to extend this mutual patent agreement to perpetuity. Of the total purchase price of EUR 5.44 billion, EUR 3.79 billion relates to the purchase of substantially all of the Devices & Services business, and EUR 1.65 billion relates to the mutual patent agreement and future option.

The transaction is expected to close in the first quarter of 2014, subject to approval by Nokia shareholders, regulatory approvals and other customary closing conditions.

Following the transaction, Nokia plans to focus on its three established businesses– NSN, a leader in network infrastructure and services; HERE, a leader in mapping and location services; and Advanced Technologies, a leader in technology development and licensing.

“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,” said Risto Siilasmaa, chairman of the Nokia Board of Directors and, following today’s announcement, who also became the interim CEO of the Finnish firm.

Microsoft has agreed to make immediately available to Nokia EUR 1.5 billion of financing in the form of three EUR 500 million tranches of convertible bonds to be issued by Nokia maturing in 5, 6 and 7 years respectively.

It is at Nokia’s discretion if it chooses to draw down all or some of these tranches. The financing is not conditional on the transaction closing. If the transaction closes, any outstanding bonds will be redeemed and netted against the deal proceeds by the amount of principal and accrued interest.

Microsoft has agreed to a 10 year license arrangement with Nokia to use the Nokia brand on current Mobile Phones products. Nokia will continue to own and maintain the Nokia brand. Under the terms of the transaction, Microsoft has agreed to a 10 year license arrangement with Nokia to use the Nokia brand on current and subsequently developed products based on the Series 30 and Series 40 operating systems.

Upon the closing of the transaction, Nokia would be restricted from licensing the Nokia brand for use in connection with mobile device sales for 30 months and from using the Nokia brand on Nokia’s own mobile devices until December 31, 2015.

The transaction is subject to potential purchase price adjustments, protecting both Nokia and Microsoft, and a USD 750 million termination fee payable by Microsoft to Nokia in the event that the transaction fails to receive necessary regulatory clearances.

“Following this transaction, Nokia’s financial situation is expected to be significantly stronger and its earnings profile significantly improved,” said Nokia CFO and interim President Timo Ihamuotila.

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