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Microsoft Corporation (MSFT), Nokia Corporation (ADR) (NOK): Right or Wrong?

Microsoft Corporation (NASDAQ:MSFT) is still getting some Monday-morning quarterbacking around the market following its announcement that it was buying the devices and services division of Nokia Corporation (ADR) (NYSE:NOK) for $7.2 billion. The market itself reacted Tuesday, with Nokia stock shooting up more than 20 percent on the day, while Microsoft stock fell about 5 percent. While there seems to be some mixed reactions to the deal, the bears seemed to win out Tuesday, as they apparently saw the deal as too big of a risk for Microsoft to take.

Microsoft Corporation (MSFT), Nokia Corporation (ADR) (NOK)Bear Angle: Microsoft Corporation (MSFT) May Have Made a Mistake

When Microsoft Corporation (NASDAQ:MSFT) CEO Steve Ballmer announced the deal to buy Nokia Corporation (ADR) (NYSE:NOK), he called the buy “a significant event in our transformation.” With the push to develop a more synergistic ecosystem that more seamlessly integrates software and hardware.

However, while on the face it looks like a common-sense deal, some analysts have stated concerns.  Ed Maguire, analyst at CLSA Americas, is not completely unconvinced, but he expressed  definite concerns due to the relative lack of apps on Windows Phone devices. “Part of the appeal of a phone is really what you can do with it. It’s the apps,” Maguire said. “Microsoft doesn’t control the third-party developers that create those applications. So part of the rationale for an integrated platform is, if you’re a developer, you get more bang for your buck by developing on a Microsoft platform because you can run apps on different form factors, which is not something you can do with Apple iOS and Mac OS, for instance, which are quite different.”

Bull Angle: The Deal May Have Long-term Value

While the stock market reacted negatively to the Microsoft Corporation (NASDAQ:MSFT) deal for Nokia Corporation (ADR) (NYSE:NOK), one post on Seeking Alpha made the argument that the market actually got the deal all wrong, and that those who are looking for good value might just have found it in Microsoft once the dust settles on this deal.

The post included this statement: “With its drop, MSFT lost $12.5 billion in value. Under the worst case scenario, Nokia has no value, and Microsoft just blew $7.2 billion. Right off the bat, the stock overreacted by $4.3 billion or 1.6%.”

The analysis went on to say that this deal may actually be an even more affordable play for Microsoft than how it looks on paper thanks to U.S. tax laws regarding repatriated money. The analysis claimed that Ballmer is using overseas money to secure the deal that brings Stephen Elop back to Redmond from Finland.


The $7.2 billion of overseas money is essentially like a $4.7 billion domestic  investment considering that if the money for the deal was spent with repatriated money, Microsoft would have paid a 35-percent tax rate. Based on that, there is an argument that could be a relatively low-risk deal.

Check for a New Exec

Joshua Brustein of Bloomberg BusinessWeek recently reported on the top part of Microsoft Corporation (NASDAQ:MSFT) reorganization and transition in the wake of the recent news that Ballmer would retire from the CEO spot over the course of the next 12 months. While there is no indication yet as to the exact date for Ballmer’s departure, this deal for Nokia Corporation (ADR) (NYSE:NOK) could may well be one of the last big deals on his resume as he departs stage left.

If you are a Microsoft Corporation (NASDAQ:MSFT) follower and investor like fund manager Bill Miller, who would you consider the No. 1 candidate as CEO? Do you think the Nokia Corporation (ADR) (NYSE:NOK) deal is a good or bad move?


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