Microsoft will pay $8 billion for Nokia's mobile business. Photo: Reuters
Microsoft’s agreement to buy Nokia’s handset business, codenamed Project Gold Medal, was more of a sprint than a marathon.
Talks between the two companies began in February after both sides agreed a two-year-old collaboration on smartphone development wasn’t working, according to people familiar with the deal.
Steve Ballmer: Stepping down as Microsoft CEO within a year. Photo: Bloomberg
By July, Microsoft and Nokia, based near Helsinki, settled on the price and structure of a 5.44 billion euro ($8 billion) deal to buy the handset business and license its patents, the people said.
In contrast, Vodafone’s announced sale on September 2 of its 45 per cent stake in US mobile company Verizon Wireless for $US130 billion ($145 billion) followed years of talks with Verizon Communications.
Nokia’s codename in the talks was Nurmi, named after Paavo Johannes Nurmi, the nine-time gold medal runner known as the “the Flying Finn.” Microsoft was dubbed Edwin Moses, for the American track-and-field athlete who won two gold medals in the hurdles.
Nokia’s board met more than 50 times to deliberate on a sale, a process described as a soul-searching exercise by the people, who asked not to be identified.
Timed to follow last month’s announcement that Microsoft chief executive Steve Ballmer would retire, the Nokia deal is intended to set up the US company for a renewed assault on the smartphone and tablet markets, the people said.
Once the world’s most dominant technology firm, Microsoft under Ballmer has lagged behind Google and Applein fast-growing mobile devices, amid contraction in the personal-computer market it helped invent.
“Microsoft realised that it wouldn’t be possible to succeed without controlling the entire value chain,” said Francisco Jeronimo, research director for European mobile devices at research firm IDC in London. “Nokia has realised that it needed a stronger ally with the financial muscle to continue driving its Lumia smartphones.”
Microsoft investors signalled unhappiness with the deal yesterday, pushing the firm’s stock down 4.6 per cent to $US31.88, eliminating about $US13 billion in market value. Nokia shares soared 34 per cent to 3.97 euros, valuing the firm at about 15 billion euros.
Discussions began in earnest after a meeting between Ballmer and Risto Siilasmaa, the Finnish company’s chairman, at the Mobile World Congress in Barcelona in February.
The venue was fitting; Nokia CEO Stephen Elop introduced the companies’ partnership at the 2011 edition of the Congress, which has since become a showcase for flashy announcements from more successful device-makers like Samsung Electronics.
The executives felt the collaboration hadn’t delivered on its promise, the people said, citing duplication of efforts on marketing and on encouraging developers to write applications for Microsoft’s Windows Phone software. The companies also run parallel mapping platforms.
Ballmer, who had initiated the talks, felt that Microsoft needed to own a branded consumer device, said a person with direct knowledge of the situation.
Microsoft’s heavily marketed Surface tablet computer has so far been a flop, resulting in a $US900 million write-down on the value of unsold devices.
With key issues in the Microsoft deal worked out by mid-summer, the companies and advisers spent August hammering out details, the people said. Due diligence for Microsoft, which has never had a large-scale hardware business apart from the Xbox gaming console, was complex, they added.
Nokia Siemens, which builds networking gear for telecommunications operators, will account for the core of the new-look Nokia now that it is exiting the handset business, which as recently as 2007 had nearly 40 per cent of the global market for mobile phones.
The decision to abandon the devices business was an emotional one for Nokia’s board, whose chairman and vice chairman are Finns, the people said. The phones are a source of national pride and at one point were carried by 90 per cent of Finns.
After introducing its first handsets three decades ago, Nokia emerged as Finland’s first major global corporation and symbolised the country’s transformation into a technology-driven economy.
“There is clearly of course some emotion attached to this, me being a Finn and all that,” Nokia chief financial officer Timo Ihamuotila said in a Bloomberg Television interview.
For Microsoft, taking full control of Nokia’s devices business may not be enough to make headway in the mobile sector. Windows Phone had a 3.7 per cent share of the smartphone market in the second quarter, according to IDC, compared with 79 per cent for Google’s Android.
Meanwhile, Microsoft is keeping an eye on BlackBerry, the people said. The Canadian manufacturer has said it’s seeking a buyer, and its strong presence in the enterprise market could still attract interest from Microsoft, they said.
The Microsoft-Nokia transaction caps a frenetic summer for telecommunications, technology and media bankers. In addition to the Vodafone-Verizon transaction, where both Goldman and JPMorgan had roles, in July Publicis Groupe and Omnicom Group agreed to merge into the world’s largest advertising agency.
Their involvement with Microsoft and Nokia will secure the positions of Goldman Sachs and JPMorgan atop the closely-watched league tables for merger advice in the TMT sector.
Goldman Sachs has advised on about 40 deals valued at about $US263 billion so far this year, according to data compiled by Bloomberg, ahead of JPMorgan with about 34 deals worth $US230 billion.