Microsoft Corporation (MSFT) — Nokia Corporation (ADR) (NOK): Making The Grade

When Nokia Corporation (ADR) (NYSE:NOK) made the decision in early July to buy the 50% of Nokia Siemens Network (NSN) it didn’t already own, it was a sound move in and of itself, giving it full control of the driving force behind its revenues and earnings. How valuable is NSN? Last quarter, it was once again profitable, generated more revenue than Nokia’s devices unit,, and added $1.85 billion to its net cash position.

With the announcement that Microsoft Corporation (NASDAQ:MSFT) will acquire Nokia’s smartphone lineup for $7.2 billion, along with the use of Nokia smartphone-related patents for 10 years, both companies will fundamentally change. And considering Microsoft Corporation (NASDAQ:MSFT)’s desire to go mobile and Nokia’s plan to focus on other, more profitable markets like telecom infrastructure provider NSN, this deal is right in line with both companies objectives.

The deal
The total value of Microsoft Corporation (NASDAQ:MSFT)’s acquisition of the device and services unit comes to $7.2 billion, which includes about $5 billion for Nokia Corporation (ADR) (NYSE:NOK)’s phone and ongoing operations, and the balance for non-exclusive rights to Nokia Corporation (ADR) (NYSE:NOK)’s phone-related patents. Microsoft Corporation (NASDAQ:MSFT) has agreed to make about $2 billion available immediately in the form of three sets, or tranches, of convertible bonds issued by Nokia.

The plan is for Stephen Elop to step down from his CEO position and his seat on Nokia Corporation (ADR) (NYSE:NOK)’s board to take over as president of what will be Microsoft’s device and services unit, and oversee the 32,000 former Nokia employees who will transition to the world of Microsoft. Considering Elop’s background with Microsoft Corporation (NASDAQ:MSFT), Steve Ballmer’s stepping down, and now this mammoth deal, let the “Elop Named Microsoft’s New CEO” rumors begin.

The acquisition is expected to close early in 2014, assuming Nokia Corporation (ADR) (NYSE:NOK) is able to gain shareholder approval at a special meeting scheduled for Nov. 19, 2013, and will be funded using about 10% of Microsoft Corporation (NASDAQ:MSFT)’s overseas cash hoard of $70 billion.

The bottom line
Leaving the smartphone device manufacturing business is a huge step for Nokia Corporation (ADR) (NYSE:NOK). For a company that was instrumental in the mobile phone manufacturing industry for so long, this deal changes who and what Nokia is.