Nokia Oyj (NOK1V) agreed to buy Siemens AG (SIE)’s share in their six-year venture for 1.7 billion euros ($2.2 billion), giving the Finnish company full access to the phone-equipment maker’s cashflow for a less-than-estimated price.
Nokia will pay 1.2 billion euros for Siemens’s 50 percent stake in Nokia Siemens Networks, with the remainder as a secured loan from Siemens due a year after the deal is completed, the companies said today. Nokia, fighting to come back in the smartphone industry, doesn’t plan to integrate Nokia Siemens and may still decide to seek partners, Chief Executive Officer Stephen Elop told a conference call.
Nokia shares jumped as much as 10 percent in Helsinki. The purchase price values the venture, which returned to profit last year, at 3.4 billion euros, less than at least 5 billion euros estimated by Hannu Rauhala, a Helsinki-based analyst at Pohjola Bank. Siemens has been seeking to exit wireless-gear manufacturing to focus on energy equipment, healthcare and infrastructure projects. Bloomberg News reported the accord late yesterday.
“With this transaction, Nokia buys itself a future, whatever happens in smartphones and feature phones,” said Pierre Ferragu, an analyst at Sanford C. Bernstein in London. “Nokia Siemens has a future in the network equipment world, with a streamlined operation and a No. 2 position in a now concentrated and stable market.”
Shares Jump
Nokia rose as much as 29 cents and traded 7.7 percent higher at 3.07 euros at 10:13 a.m. in Helsinki, valuing the company at 11.5 billion euros. Siemens gained 2.4 percent to 79.49 euros on the Frankfurt exchange.
Nokia Siemens’s headquarters will stay in Espoo, Finland, and Rajeev Suri will continue to lead the equipment supplier. Nokia and Siemens, based in Munich, expect to complete the deal in the third quarter.
Nokia and Siemens abandoned talks with private-equity buyers in 2011 over a sale of the business as the firms failed to come up with a compelling offer. Nokia Siemens then started a program in late 2011 to cut 17,000 jobs, or about 23 percent of the total. Competition from Asian rivals Huawei Technologies Co. and ZTE Corp. (000063) prompted Nokia Siemens and its western rivals such as Ericsson AB and Alcatel-Lucent SA to eliminate jobs. Nortel Networks Corp. went bankrupt in 2009.
Options Open
“There’s a range of options that could exist for NSN over time,” Elop said during a conference call. “All of those options remain open.”
Unprofitable until early last year, Nokia Siemens’s earnings have improved thanks to cost cuts. The venture is on track to exceed its target of saving 1 billion euros in operating expenses by the end of this year, Chief Executive Officer Suri said in February.
Nokia Siemens is the most recent European technology venture to unravel. Sony Corp. last year completed a buyout of its mobile-phone partnership with Ericsson AB. Ericsson and STMicroelectronics SA this year agreed to split up their unprofitable chipmaking venture ST-Ericsson.
Siemens, which makes products from power turbines to high-speed trains, renewed efforts to sell its stake earlier this year, holding talks with buyout firms about a potential transaction, according to two people familiar with the talks.
Net Cash
Nokia Siemens Networks had about 56,700 employees at the end of the first quarter and supplies companies such as Deutsche Telekom AG and Vodafone Group Plc.
Nokia reported in April its smallest quarterly revenue in 13 years as handset demand waned. Its first-quarter sales fell 20 percent as competition from Asian manufacturers building phones that run Google Inc.’s Android software hurt demand for Nokia’s basic handsets.
Nokia said today it had net cash of 3.7 billion euros to 4.2 billion euros at the end of June, down from 4.5 billion euros at the end of March. Nokia’s debt is at junk status with the three main rating companies. In January, Nokia scrapped its dividend for the first time in at least 143 years to bolster liquidity.
The deal may help Siemens CEO Peter Loescher, who this year announced the fourth profit forecast cut in his six-year tenure, to reach a target for matching profitability at General Electric Co. (GE) and ABB Ltd. (ABBN)
Energy Focus
“With this transaction, we continue our efforts to strengthen our focus on Siemens’ core areas of energy management, industry and infrastructure as well as healthcare,” Siemens Chief Financial Officer Joe Kaeser said in today’s statement.
Loescher, an Austrian national who joined Siemens in 2007 from drugmaker Merck & Co. as the first CEO hired from outside the company, started a savings program last year after acknowledging he had been slow to react to the economic downturn. The CEO is also under pressure after some deals that he supervised soured and a push into environmentally friendly energy led to spiraling costs.
Europe’s largest engineering company this year announced the closure of its loss-making solar unit, and is also selling water technologies, parcel automation, airport logistics and air freight units, while its Osram Licht AG lighting unit will be spun off.
Source : bloomberg
