Microsoft’s big move into the mobile space

Oliver Smith
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MICROSOFT’S €5.33bn (£4.5bn) purchase of Nokia’s mobile devices business marks the US computer giant’s first steps into building smartphones to complement its mobile operating system.

The deal gives Microsoft control of Nokia’s Lumia smartphone devices, which currently control four per cent of the global smartphone market, and low cost Asha feature phones.

“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,” said Microsoft chief executive Steve Ballmer.

Of the total proceeds, €3.8bn is for Nokia’s devices and services division and €1.65bn is part of a ten year patent licensing agreement for Microsoft’s use of the Nokia patents required to operate phone the devices division.

The deal is the second major tech acquisition in as many days, leading some to suspect that the deals herald the start of a new wave of mergers and acquisitions.

League table: Thomson Reuters

“Before the fire power was there – because financing is available and there is ample liquidity for the right deals – but the willpower wasn’t, these two deals demonstrate that now the willpower to do deals is back,” Vis Raghavan, EMEA head of banking at JP Morgan, Nokia’s sole advisors on the Microsoft deal, told City A.M. yesterday.

“I definitely expect things to be a lot brisker than what the market’s been used to over the last few years.”

The remaining portions of Nokia’s business – comprised of network infrastructure, location-based services and its patent portfolio and licensing arms – will continue to operate under interim chief executive and Nokia chair Risto Siilasmaa after the exchange is completed in early 2014.

In July Nokia narrowed its quarterly losses to €115m down from €824m in the same quarter last year, but still came in shy of turning a profit.

“After a thorough assessment of how to maximise shareholder value, including consideration of a variety of alternatives, we believe this transaction is the best path forward for Nokia,” said Siilasmaa.

In a presentation to investors following yesterday’s news, Microsoft outlined its target to increase the division’s smartphone market share to 15 per cent, and ship 50m devices a quarter by 2018. Nokia currently ships just over 7m smartphones a quarter.

Microsoft’s board members were advised during the deal by Covington and Burling.