Microsoft sinks as Nokia soars on tie-up news

Oliver Smith
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MICROSOFT suffered another disappointing day on the stock market yesterday as the company failed to persuade investors that its €5.44bn (£4.5bn) acquisition of Nokia’s devices and services division would improve the company’s fortunes.

Since the deal Microsoft stock has plummeted six per cent, wiping more than $18bn from the group’s market value.

Steve Ballmer, Microsoft’s chief executive, said, “It was clear to me that perhaps acquisition would be a way to accelerate.” It is clear that Microsoft’s investors have not reacted quite so confidently to the deal

In comparison Nokia’s stock has settled at €4 a share, up 37 per cent since news of the deal broke.

Ratings agency Fitch yesterday gave Nokia investors more reasons to be confident in the Finnish firm with the indication that they could improve Nokia’s long term debt rating of BB minus following the influx of Microsoft cash.

In the meantime Nokia has been placed on a positive rating watch indicating that Nokia’s risk of default is improving.

Fitch said the change was also made on the back of Nokia’s disposal of a business division that “has recorded significant losses and driven material weakness in the company's cash flows”.

Nokia’s retention of its patent portfolio according to the terms of the deal with Microsoft – Microsoft paid €1.65bn to license Nokia’s patents for 10 years following the deal – the feeling among investors has been that Nokia got the best end of the deal.
“Once we no longer have our own mobile devices business, following the close of the transaction, we would be able to explore licensing some of those technologies,” a Nokia spokesperson said to Reuters.

Oddo & Cie raised its target price for Nokia yesterday from €3 to €3.5 on the back of the company’s patent portfolio. Oddo said, “The balance sheet is clearly improving with a possible return to investment grade. However, the upsurge in the share price has prompted us to lower our recommendation from neutral to reduce.”

Nokia has also been buoyed by the exodus of short selling hedge funds, whose desperation to exit loss-making positions is thought to have inflated Nokia’s stock price since Tuesday’s announcement.