Microsoft swallows Nokia's phone business for $7.

2 billion (Reuters) - Microsoft Corp will buy Nokia's phone business and license its patents for 5.44 billion euros ($7.2 billion), a bold foray into mobile devices that also brings potential chief executive contender Stephen Elop back into the fold. Two years after hitching its fate to Microsoft's Windows Phone software, the Finnish phone maker that once dominated the global market collapsed into the arms of the U.S. software giant, its mobile business ravaged by nimbler rivals Apple Inc and Samsung Electronics. Shares in Microsoft slid as much as 6 percent in the afternoon, lopping more than $15 billion off the company's market value, as investors protested the acquisition of an underperforming and marginalized corporation that lost more than $4 billion in 2012. Retiring CEO Steve Ballmer is trying to remake Microsoft into a gadget and services company like Apple, a move that has not won the endorsement of all shareholders. Nokia CEO Elop, who ran Microsoft's business software division before jumping ship in 2010, will return to the U.S. firm to head up its mobile devices business just as the company's board considers a successor to Ballmer, who announced last week he will retire within a year. Elop, who presided over Nokia's market share collapse and a shriveling share price during his three years at the helm, is being discussed as a potential replacement because he remains respected and is considered one of the few who can fully grasp Microsoft's sprawling empire. But disgruntled Finnish media labeled him a Trojan horse who handed over the keys to one of the few remaining European technology powers. Nokia, whose market value topped $200 billion over a decade ago, will now concentrate on its networking equipment unit, navigation business and technology patents. The Nokia deal thrusts Microsoft deeper into the hotly contested mobile phone market, despite some investors urging it to stick to its core strengths of business software and services. Activist fund manager ValueAct Capital Management, which has been offered a board seat, is among those concerned with Ballmer's leadership and his attempts to plough headlong into the lower-margin, highly competitive mobile devices arena. "Adding to the cost structure when shareholders may be looking for steps in the other direction is not likely to be well received...," said Nomura analyst Rick Sherlund. "Perhaps a decision to repurchase stock and up the dividend would be a good idea right about now." Others applauded Ballmer's aggressive gambit. "Microsoft cannot walk away from smartphones, and the hope that other vendors will support Windows Phone is fading fast. So buying Nokia comes at the right time," said Carolina Milanesi, an analyst at Gartner. "In today's market it is clear that a vertical integration is the way forward for a company to succeed. How else could Microsoft achieve this?" As part of Microsoft, Elop will head an expanded Devices unit. Julie Larson-Green, who in July was promoted to head a new Devices and Studios business in Ballmer's reorganisation, will report to Elop when the deal is closed. CRUNCH TIME It is a pivotal moment for Microsoft, which still has huge revenues from its Windows operating system, Office suite of business software and Xbox game console, but has failed so far to set up a profitable mobile device business.

"On the other hand. though he added he also felt "a great deal of sadness" over the outcome. his legacy will be a bitter one for Finland. which began life as a paper mill and has sold an eclectic range of products from television sets to rubber boots in its 148-year history. "It's very clear to me that rationally this is the right step going forward. The deal leaves the Finnish company with Nokia Solutions and Networks. "As a Finnish person.4 million smartphones. Danske Capital's senior portfolio manager." said Juha Varis." SOLD FOR "PEANUTS" While some investors credit Elop for bringing urgency to Nokia. which had 40 percent of the handset market in 2007. In 2011. which has stepped up its pace of product development in recent months and is due to announce a "phablet" large-screen handset this month.33 euros hit last year. "I feel sadness because inevitably we are changing Nokia and what it stands for. due to development and marketing costs it pays to Nokia. Hired by former chairman Jorma Ollila. has sold tepidly since it was launched last year. Last quarter. it said the business would not be fully profitable until fiscal year 2016. after writing a memo that said Nokia lacked the in-house technology and needed to jump off a "burning platform". it was maybe the last opportunity to sell it.Microsoft's own mobile gadget. Elop was Nokia's first foreign CEO. I cannot like this deal. After today's gains the whole company is worth about 15 billion euros. the Surface tablet. The company. they are still only a fraction of their 2000 peak of 65 euros. as opposed to less than $10 now. Without it. as well as a navigation business and a broad portfolio of patents. was a galling snub to national pride. and needs to sell more than 50 million smartphones a year to break even. "We think we have made excellent.000 worldwide and then delivered it into the software giant's hands. now has just 15 percent. rather than Nokia's own software or Google Inc's ubiquitous Android operating system. Elop made the controversial decision to use Microsoft's Windows Phone for smartphones. It ends one chapter in this Nokia story. and only 3 percent in smartphones. Microsoft said it would make more than $40 profit on each smartphone it sells once it owns the Nokia business. the companies said. Nokia." Elop told reporters. Nokia sold 7. which competes with the likes of Ericsson and Huawei in telecoms equipment. For many Finns." . the fact that a former Microsoft executive had come to Nokia. excellent progress with the partnership and yet we also know we have a long way go and felt on balance that together this is the best approach for both companies' shareholders." Ballmer told Wall Street analysts in a conference call to explain the deal early on Tuesday." a column in widely read tabloid Ilta-Sanoma said. Tuesday's deal includes an agreement to license Nokia's patent portfolio for 10 years. While up from their decade-low of 1. Shares in Nokia surged 34 percent to close at 3. bet the firm's future on an alliance with Microsoft. was a national champion in its heyday. whose fund owns Nokia shares.97 euros by late Tuesday. laid off about 40. a far cry from its glory days when it reached over 200 billion euros. However.7 billion euros. "Jorma Ollila brought a Trojan horse to Nokia. accounting for 16 percent of all exports. Nokia's devices and services business would have been worth about 3.

Meagher & Flom represented Nokia. Alexander Stubb. FIRE SALE Analyst Tero Kuittinen at consultancy Alekstra said the sale price of Nokia's phone business. they said. sought to assuage fears the deal would hit jobs in the Nordic country and said Microsoft would build on the recent growth of Nokia's flagship Lumia smartphones. about a quarter of its sales last year.000 staff to transfer to Microsoft. and Chris Weber would transfer to Microsoft when the deal is concluded. Finland's Minister for European Affairs and Foreign Trade. at a news conference in the Finnish capital. which was praised by tech reviewers but hasn't found the momentum to challenge the market leaders. Still. meaning it now costs $200. 2 mobile phone maker behind Samsung. including about 4. Timo Toikkanen. Credit default swap spreads on Nokia tightened by more than 30 basis points to around 200 basis points after the news. Sales of Nokia's Lumia phones have helped the market share of Windows Phones in the global market climb to 3. while Skadden.Varis was one of many investors critical of Elop's decision to bet Nokia's future in smartphones on Microsoft's Windows Phone software. That's peanuts compared to its history.7582 euros) . "It is difficult to say if it's cheap or expensive.3 percent. about half what Google paid for Motorola's handset business in 2012. according to people close to the deal." Others were less clear about what a shrunken Nokia was worth. said on his Twitter account: "For a lot of us Finns. overtaking ailing BlackBerry Ltd for the first time this year. analyst at Pohjola Bank. Juha Putkiranta. represented a "fire sale level. probably in the first quarter of 2014." Nokia remains the world's No. Arps. Law firm Simpson Thacher represented Microsoft." he said. "So this is the outcome: the whole business for 5 billion euros. Many first reactions to the deal will be emotional. describing how the board had met almost 50 times after the approach by Microsoft around February. Nokia said it expected around 32.000 people of its roughly 90. according to consultancy Gartner. including myself. Goldman Sachs acted as financial advisor to Microsoft. Nokia said it expected that senior executives Jo Harlow. which is rated junk due to worries about its shrinking cash position and market share. "What should be paid for a declining business. ($1 = 0." Nokia's new interim CEO Risto Siilasmaa painted a picture of just how grudgingly the call to sell had been arrived at.700 who will transfer in Finland. but it is not in the top five in the more lucrative and faster-growing smartphone market. Google's Android and Apple's iOS make up 90 percent of the market. while JP Morgan advised Nokia. The price agreed for the devices and services business gives it an enterprise value of about 0.000 to insure $10 million worth of Nokia debt. Ballmer. Nokia phones are part of what we grew up with. where market share has been constantly lost and profitability has been poor?" said Hannu Rauhala.33 times sales for a loss-making business. Slate.

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