NOKIA announced this morning it has agreed to buy out Siemens’ stake in their network equipment joint venture for $2.2bn (£1.45bn), in a move that is likely to bring some stability to the company that has struggled to compete in the smartphone market.
The full purchase of Nokia Siemens Networks (NSN), allows the Finnish group to consolidate what is profitable venture into to its struggling mobile phone unit.
Nokia fell behind rivals Apple and Samsung Electronics in the smartphone race, making the controversial decision to switch to Microsoft’s untried Windows software in 2011.
In contrast to Nokia’s phone business, NSN turned profitable in the second quarter of 2012 after slashing costs and as its focus on fourth-generation Long Term Evolution (LTE) networks began to pay off.
Nokia said it will pay Siemens €1.2bn in cash at the closing of the transaction, which is expected in the third quarter of this year. The other €0.5bn will take the form of a secured loan from Siemens that will be repaid later.
“Nokia Siemens Networks has established a clear leadership position in LTE, which provides an attractive growth opportunity,” Nokia chief executive Stephen Elop said in a statement.
Nokia and Siemens formed the joint joint venture in April 2007 and the agreement lapsed in April this year. Nokia had said it had wanted NSN to be sold or listed and many analysts had believed it might be sold.
Bernstein analyst Pierre Ferragu said the deal came at a cheaper than expected price but noted that the acquisition could put pressure on Nokia’s balance sheet.
Nokia said it estimated its net cash position had fallen from €4.5bn at the end of the first quarter to between €3.7 to €4.2bn at the end of June, adding that if the NSN deal had closed in the second quarter, its net cash position would have been €2.0 to €2.5bn.
“With this transaction, Nokia buys itself a future, whatever happens in smartphones and feature phones,” Ferragu said.