Why Microsoft Grabbed Nokia's Devices
NEW YORK (TheStreet) -- This week's announcement of Microsoft's
Back-envelope calculations suggest the premium paid was good, with Nokia Solutions and Networks (NSN) being valued at around €7 billion and Nokia's IPR at about €1.2 billion. Adding to that, Nokia's estimated net cash position of €2 billion at the end of 2013 and this week's €5.44 billion transaction price yields a pro-forma valuation of roughly €16 billion, which corresponds to €4.20 per share, compared to Monday's close of €2.98, a 41% premium.
The €5.44 billion in cash has two components: €3.79 billion for Devices & Services (D&S) and €1.65 billion for the patent licensing. Microsoft will also be able to leverage the Nokia brand for the next 10 years. The deal leaves Nokia pretty much as a telecom equipment manufacturer focused around NSN. Although NSN has done well as of late, there are questions about its longer-term sustainability, as it's remained focused on only a few elements of wireless networks (e.g. the Radio Access Network, or RAN equipment). Smaller scale and less diversification will mean that what's left of Nokia will trade at discounted multiples relative to its peers such as Ericsson
On the Microsoft side of the equation, the key consideration is: will a hardware acquisition enable the company to strengthen its ecosystem and offer a more differentiated product? That was one of the rationales behind the Google