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Microsoft Grabs Nokia In Phone War

$7.2B Deal Aims to Fend Off Advances by Apple, Google

Seattle — Microsoft Corp. has agreed to buy Nokia’s handset business and license its patents for $7.2 billion, casting together the lot of two technologies companies trying to stay relevant against Apple and Google.

The devices and services unit, which accounted for half of Nokia’s 2012 revenue, along with 32,000 employees, will transfer to Microsoft, the companies said Tuesday. Nokia Chief Executive Officer Stephen Elop, 49, will return to Microsoft after a three-year stint running the Finnish manufacturer. The move stoked speculation he may be a potential successor to CEO Steve Ballmer, who said last month he’d retire within 12 months.

Nokia shares jumped as much as 48 percent in Helsinki as the sale removes a drag from losses in the handset making and turns the company into a network-equipment supplier. For Microsoft, the purchase marks its biggest foray into hardware as sliding personal-computer sales threaten demand for the Windows operating system that made it the largest software maker.

“The question is whether combining two weak companies will get you a strong new competitor: it’s doubtful,” said Paul Budde, a telecommunications consultant in Sydney. “Both Nokia and Microsoft really missed the boat in terms of smartphones, and it is extremely difficult to claw your way back from that.”

Nokia, based in Espoo, Finland, racked up losses of more than 5 billion euros over nine quarters as Elop’s comeback efforts failed to eat into the dominance of Apple and Google’s Android platform in the smartphone market. The stock has slumped more than 80 percent in the five years through yesterday.

The shares rose 38 percent to 4.09 euros at 12:40 p.m. in Helsinki, valuing Nokia at 15.4 billion euros. That compares with a $278 billion market capitalization for Redmond, Wash.-based Microsoft.

As part of the agreement, Microsoft will pay 3.79 billion euros for Nokia’s devices division and 1.65 billion euros for patents, according to a statement from the companies. The all- cash transaction, subject to Nokia investors’ approval, is expected to be completed in the first quarter of 2014.

Nokia said it will book a gain of 3.2 billion euros, with the sale “significantly” accretive to earnings. It also said it aims to return its debt, which is ranked junk by all three major rating companies, to an investment grade. Chairman Risto Siilasmaa, who will become Nokia’s interim CEO, said the company may return excess capital to shareholders.

“It’s a big transformation, but that’s what you’ve got to do in the tech business to move forward,” Ballmer told Tom Keene on Bloomberg Television’s The Pulse.

The takeover is the largest for a wireless device maker after Google’s purchase of Motorola’s handset unit in 2012. For Microsoft, the deal including the payment to license Nokia’s patents is its second-biggest behind the $8.5 billion purchase of Skype in 2011.

With the latest sale, the original pioneers in the mobile- phone industry — Motorola, Nokia and Ericsson AB — have all ceased to be independent handset manufacturers or given up on the business.