Microsoft acquires Nokia devices and phone business

Following the transaction, Nokia plans to focus on its three established businesses, each of which is a leader in enabling mobility in its respective market segment: NSN, a leader in network infrastructure and services; Here, a specialist in mapping and location services; and Advanced Technologies, a leader in technology development and licensing. At closing, this transaction is expected to strengthen Nokia’s financial position and provide a solid basis for future investment in these three businesses. Upon the closing of the transaction, Nokia would be restricted from licensing the Nokia brand for use in connection with mobile device sales for 30 months and from using the Nokia brand on Nokia’s own mobile devices until December 31, 2015.

Subject to the closing of the transaction, Microsoft will acquire substantially all of Nokia’s Devices & Services business, including the Mobile Phones and Smart Devices business units as well as an industry-leading design team, operations including all Nokia Devices & Services production facilities, Devices & Services-related sales and marketing activities, and related support functions. At closing, approximately 32,000 people are expected to transfer to Microsoft, including approximately 4,700 people in Finland. Nokia’s CTO (Chief Technology Office) organization and patent portfolio will remain within the Nokia Group. The operations that are planned to be transferred to Microsoft generated an estimated Euro 14.9 billion, or almost 50%, of Nokia’s net sales for the full year 2012. In the first half 2013, Nokia Group net sales were Euro 11.5 billion and non-IFRS operating margin was 4.2%. On a pro forma basis assuming this transaction would have closed, Nokia Group net sales would have been Euro 6.3 billion and non-IFRS operating margin would have been 12.1% in the first half 2013.

As part of the transaction, Nokia will grant Microsoft a 10 year non-exclusive license to its patents as of the time of the closing, and Microsoft will grant Nokia reciprocal rights related to Here services. In addition, Nokia will grant Microsoft an option to extend this mutual patent agreement to perpetuity. Of the total purchase price of Euro 5.44 billion, Euro 3.79 billion relates to the purchase of substantially all of the Devices & Services business, and Euro 1.65 billion relates to the mutual patent agreement and future option.

Additionally, Microsoft will become a strategic licensee of the Here platform, and will separately pay Nokia for a four year license. This revenue stream is expected to substantially replace the revenue stream Here is currently receiving from Nokia’s Devices & Services business internally. If the transaction closes Microsoft is expected to become one of the top three customers of Here.

Microsoft has agreed to make immediately available to Nokia Euro 1.5 billion of financing in the form of three Euro 500 million tranches of convertible bonds to be issued by Nokia maturing in 5, 6 and 7 years respectively. It is at Nokia’s discretion if it chooses to draw down all or some of these tranches. The financing is not conditional on the transaction closing. If the transaction closes, any outstanding bonds will be redeemed and netted against the deal proceeds by the amount of principal and accrued interest.

According to a press release, Nokia will retain its headquarters in Finland. Excluding the approximately 32,000 people planned to transfer to Microsoft, Nokia would have employed approximately 56,000 people at the end of the second quarter 2013. The company announced changes to its leadership as a result of the proposed transaction. These changes, which are effective immediately, are designed to provide an appropriate corporate governance structure during the interim period following the announcement of this transaction.

Risto Siilasmaa will assume an interim CEO role for Nokia while continuing to serve in his role as Chairman of the Nokia Board of Directors. Timo Ihamuotila becomes President of Nokia for the interim period while also continuing to serve as CFO. Mr. Ihamuotila will assume the responsibility of chairing the Nokia Leadership Team.

Nokia plans to hold an Extraordinary General Meeting on November 19, 2013 and to publish a notice of the meeting and make available more information on the transaction and its background later this month. Having thoroughly analysed the transaction and other alternatives available, the Board of Directors decided to enter into the transaction and recommends that Nokia shareholders vote to confirm and approve the sale of substantially all of the Devices & Services business to Microsoft at the Extraordinary General Meeting.