By Lisa Johnston
New products on display at the American International Toy Fair, held in N
Redmond, Wash. — Microsoft will purchase substantially all of Nokia’s cellular-handset business and license its patents for 5.44 billion euros ($7.16 billion) in cash.
The deal will “accelerate the growth of its share and profit in mobile devices through faster innovation, increased synergies, and unified branding and marketing,” Microsoft CEO Steve Ballmer announced last night.
Since 2011, Nokia and Microsoft have been joined in a strategic partnership to promote Microsoft’s smartphone OS and help Nokia rebuild its cellphone market share. The partnership has helped Microsoft improve its share of the smartphone OS, but it still lags far behind Apple and Android.
The acquisition, Microsoft said in investor materials, “protects Windows Phone future” because the Windows Phone OS share has a “high concentration” with Nokia, “first-party hardware ensures Windows Phone presence,” and the “OEM model alone [is] expensive in this market position.”
With the acquisition, “we can now bring together the best of Microsoft’s software engineering with the best of Nokia’s product engineering, award-winning design, and global sales, marketing and manufacturing,” added Stephen Elop, who stepped aside as Nokia president/CEO and became Microsoft’s devices and services executive VP. The combination provides “the opportunity to accelerate the current momentum and cutting-edge innovation of both our smart devices and mobile phone products,” Elop said.
The transaction is expected to close in the first quarter of 2014 following regulatory approval from multiple countries and a vote by Nokia shareholders.
The acquisition will also help the company better “integrate hardware and software to help compete with Apple and Google,” and it will aid device makers that license the Windows Phone 8 and tablet OSs, the company added in a statement. “Microsoft’s success creates expanded OEM opportunities,” the company said, and it will boost Microsoft’s tablet share because “success in phones is important to success in tablets,” the company added.
The acquisition will “strengthen the overall opportunity for us and our partners to deliver on our strategy to create a family of devices and services for individuals and businesses,” Ballmer said.
Key Nokia executives, including Elop, will go to work for Microsoft.
“Bringing these great teams together will accelerate Microsoft’s share and profits in phones and strengthen the overall opportunities for both Microsoft and our partners across our entire family of devices and services,” said Ballmer. “In addition to their innovation and strength in phones at all price points, Nokia brings proven capability and talent in critical areas such as hardware design and engineering, supply chain and manufacturing management, and hardware sales, marketing and distribution.”
Under the terms of the agreement, Microsoft will acquire Nokia’s mobile phones and smart devices business units as well as Nokia’s design team, operations including all Nokia devices and services-related production facilities; devices and services-related sales and marketing activities; and related support functions.
At closing, about 32,000 people are expected to transfer to Microsoft, including 4,700 people in Finland and 18,300 employees directly involved in manufacturing, assembly and packaging of products worldwide.
The operations that Microsoft will take over generated an estimated 14.9 billion euros, or almost 50 percent of Nokia’s net sales for the full year 2012.
Microsoft is acquiring the Lumia smartphone brand and products and, in the mobile phones business unit, Microsoft will acquire the Asha brand and license the Nokia brand for use with current Nokia mobile phones. Nokia will continue to own and manage the Nokia brand, which is used on telecom infrastructure and in other markets.
The acquisition of Nokia’s non-smartphone phone business “provides Microsoft with the opportunity to extend its service offerings to a far wider group around the world while allowing Nokia’s mobile phones to serve as an on-ramp to Windows Phone,” Microsoft said.
Nokia will retain its patent portfolio and grant Microsoft a 10-year license to its patents. Microsoft will grant Nokia reciprocal rights to use Microsoft patents in the company’s Here mapping services, which include free turn-by-turn driving directions on smartphones via smartphone-stored maps. In addition, Nokia will grant Microsoft an option to extend this mutual patent agreement in perpetuity.
In addition, Microsoft will license Nokia’s Here platform and separately pay Nokia for a four-year license.
For its part, Nokia said the sale “is expected to strengthen Nokia's financial position and provide a solid basis for future investment” in its remaining businesses.
“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, Nokia board chairman and now Nokia’s interim CEO.
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