Microsoft buys Nokia's devices and services unit for $7.2 billion

Microsoft has announced that it has purchased substantially all of Nokia’s devices and services business, and license and use of the company’s patents and mapping services. The deal is expected to close in the Q1 of 2014 and is subject to approval by Nokia’s shareholders, regulatory approvals and other closing conditions.

Under the terms of the agreement, Microsoft will pay 3.79 billion euros to purchase the Finnish company’s devices and services business, and 1.65 billion euros to license Nokia’s patents, for a total transaction price of 5.44 billion euro (approx $7.2 billion) in cash. That amount is significantly less than what the Redmond company paid for Skype in 2011. Microsoft will draw upon its overseas cash resources to fund the transaction, the company said.

Microsoft buys Nokia's devices and services unit

An approximate 32,000 people are expected to transfer to the world’s leading consumer software company, including 4,700 people in Finland and 18,300 employees directly from manufacturing units across the world. The divisions which Microsoft will buy generated an estimated 14.9 billion euros (nearly 50 percent of Nokia’s net sales) in 2012.

Nokia’s Smart Devices business unit includes the highly-lucrative Lumia brand devices, which run Microsoft’s Windows Phone OS. As part of the transaction, Nokia is assigning to Microsoft its long-term patent licensing agreement with Qualcomm, as well as other licensing agreements. Nokia’s Mobile Phones unit, which was once the driving force behind the company’s global success, will also be acquired by Microsoft. This division includes the Asha brand and Microsoft will license the Nokia brand for use with current Nokia mobile phone products, while Nokia will continue to own and manage the Nokia brand. This is a crucial acquisition as it allows Microsoft the opportunity to extend its service offerings to a far wider audience and gives Redmond a secondary platform to go along with its own Windows Phone OS.

Steve Ballmer's last move

Microsoft will be granted a 10-year license to its patents and in reciprocation, Nokia gets to use Microsoft patents to enhance the existing HERE location-based services. In addition, Microsoft will become a strategic licensee of the HERE platform, and will separately pay Nokia for a four-year license.

Finland has been selected as the home for a new data centre that will serve Microsoft consumers in Europe. The company has said that it would invest more than a quarter-billion dollars in capital and operation of the new data centre with the potential for further expansion.

“It’s a bold step into the future – a win-win for employees, shareholders and consumers of both companies. 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 across our entire family of devices and services,” said Steve Ballmer, CEO of Microsoft. Ballmer will be in the middle of handing over of reins of Microsoft in the middle of the deal and this will be seen as the last big move by the departing CEO.

“In addition to their innovation and strength in phones at all price points, Nokia brings proven capability and talent in critical areas such as hardware design and engineering, supply chain and manufacturing management, and hardware sales, marketing and distribution,” the CEO, who took over in 2000, said. 

Elop has stepped down as Nokia CEO

“For Nokia, this is an important moment of reinvention and from a position of financial strength, we can build our next chapter,” said Risto Siilasmaa, Chairman of the Nokia Board of Directors and, following today’s announcement, Nokia Interim CEO.

Stephen Elop, who headed the company before Siilasmaa’s appointment, will be stepping down. Along with Elop, Jo Harlow, Juha Putkiranta, Timo Toikkanen, and Chris Weber will also be transferred to Microsoft. “Building on our successful partnership, we can now bring together the best of Microsoft’s software engineering with the best of Nokia’s product engineering, award-winning design, and global sales, marketing and manufacturing,” said Elop, who will be Nokia’s Executive Vice President of Devices & Services till the transaction goes through.