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Microsoft & Nokia agree to $7.2 billion deal

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Microsoft & Nokia agree to $7.2 billion deal

Shares of Nokia (NYSE:NOK) soared on Tuesday following the announcement it reached an agreement with Microsoft (NASDAQ:MSFT) to sell its consumer handset business segment. For months the street has speculated to the truth behind the rumors surrounding this deal, however, some have argued it was a necessary step for Microsoft. Early in Tuesday’s session shares of Nokia traded higher by 35% to $5.26 per share after it was announced it would be receiving $7.2 billion from the transaction. At the open shares of Nokia even traded as high as $5.58 before feeling selling pressure. In contrast, shares of the acquirer, Microsoft, plummeted by more than 6%. Tuesday’s deal includes an agreement to license Nokia’s patent portfolio for 10 years. Without it, Nokia’s devices and services business would have been worth about 3.7 billion euros according to some analysts.

With the rise of smartphone technology over the last few years, a greater number of consumers have made the switch to smart handsets. However, Nokia has largely missed this transition and slumped in comparison to its chief competition. Due to increasing competition from popular brands such as Apple and Samsung, the company’s market share has fallen below historical levels. Nokia, which had 40 percent of the handset market in 2007, now has just 15 percent, and only 3 percent in smartphones.

For Microsoft it is unclear if the acquisition will actually bear fruit. For $7.2 billion one would hope Microsoft has the economies of scale, leverage, and capital to retake market share within the market. However, a number of recent product launches from the company including the surface tablet have actually just cost the company its capital. The street has already started to speculate to the real value of the acquisition. It is possible Microsoft was targeting the patent portfolio for use within its other projects, and not the actual handset business itself. During the remainder of the week it will be interesting to see if shares of the company continue further to the downside, or regain lost support.

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