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Nokia Siemens to Buy Motorola Wireless Unit for $1.2 Billion

Nokia Siemens Networks, the world’s second-largest maker of wireless phone systems, said it will pay $1.2 billion to buy wireless network assets from Motorola Inc. to expand in North America and Japan.

The joint venture of Nokia Oyj and Siemens AG will gain or expand access to more than 50 customers, it said in a statement today. Nokia Siemens said it will pay for the assets, which don’t include any debt, with cash and a credit facility it secured last year. The deal excludes $150 million in accounts receivable, cash and some other assets Motorola will keep.

Nokia Siemens Networks, based in Espoo, Finland, wants to boost its presence in North America to compete with larger rival Ericsson AB and faster-growing competitors such as China’s Huawei Technologies Co. Nokia Siemens unsuccessfully bid twice for assets belonging to Toronto-based Nortel Networks Corp. during the past year after the telecommunications-equipment maker filed for bankruptcy protection and sold off units.

“It’s a positive for Nokia Siemens,” Pierre Ferragu, a London-based analyst with Sanford C Bernstein, said in an interview. “It’s good for them to get a foothold in North America, especially as this is going to be the strongest telecoms market” over the medium term, he said. Ferragu has a “market perform” rating on Nokia and an ‘outperform” rating on Motorola.

Nokia dropped 0.1 percent to 6.77 euros at the close of Helsinki trading. Siemens slipped 1.4 percent to 73.23 euros in Frankfurt. Motorola climbed 5.6 percent, the most in five months, to $7.92 as of 4 p.m. in New York.

Trimming Expenses

Nokia Siemens adds about 7,500 employees through the deal, which is predicted to close by year end. It hasn’t planned to cut any of the jobs in groups it’s acquiring and intends to maintain a “strong presence” in central Illinois, Chief Executive Officer Rajeev Suri said on a teleconference.

Nokia Siemens has spent the last three years cutting jobs and shutting offices to adjust to falling demand and price competition from Ericsson and Huawei. Suri said in November the company planned to expand through acquisitions and partnerships while continuing to trim its existing operations.

“More scale for NSN makes sense,” Jason Willey, an equity analyst at Standard & Poor’s, said in an interview July 16. “They have a hole where they really need stronger ties to customers in the U.S. and anything they could do to improve their scale and presence there would be a positive.”

Nokia Siemens said the acquisition will strengthen its ties to operators Verizon Wireless, Sprint Nextel Corp. in the U.S., KDDI Corp. in Japan, China Mobile Ltd., and Vodafone Group Plc.

‘Deal Is Sealed’

“The deal gives strength and growth in the U.S. and Japan” and “complements our portfolio with all wireless technologies,’ Bosco Novak, Nokia Siemens’ chief markets operations officer, said in an interview. He said that there is no chance of another bidder coming in to trump Nokia Siemens’ offer.

“The deal is sealed,” Novak said. He added that he expects it to close at the end of this year and that it is subject to regulatory approval.

The wireless business at Nokia Siemens is rooted in the GSM standards used by most carriers outside the U.S. and east Asia. Motorola sells GSM systems as well as gear based on CDMA, which is used by some North American and east Asian carriers and so- called fourth-generation technologies LTE and WiMAX. Nokia Siemens also has LTE contracts.

Wireless Patents

Motorola, based in Schaumburg, Illinois, is hanging on to a technology it developed called iDEN, it said in the statement. It’s also planning to keep its wireless patents, except for some that Nokia Siemens will need to build CDMA networks. Cross- licensing is included in the deal.

Motorola’s sale of the wireless-network unit prepares it for a broader restructuring. The company is planning to spin off its mobile-phone and set-top box operations into a company that will be led by co-Chief Executive Officer Sanjay Jha. The spinoff is on schedule for the first quarter, Jha said last month.

Selling the networks business to make Motorola more focused on public safety devices makes it a “more compelling investment story,” Motorola co-chief Executive Officer Greg Brown said in a telephone interview.

The remaining unit that Brown will oversee is the “crown jewel” of Motorola’s assets, he said. The company isn’t working on any other divestitures right now, he added.

The wireless network unit minus the iDEN assets Motorola is keeping had sales of about $3.7 billion last year.

‘Very Good Price’

“They’re getting rid of this asset for a very good price and it’s a good step towards the break-up plan” which will help them to be well capitalized next year, Ferragu said.

Nokia Siemens is paying 0.3 to 0.5 times annual revenue for the unit, a “fair” price for the telecoms joint-venture to be paying, Ferragu said.

Analysts have given a range rather than a specific calculation for the ratio of the network unit’s sales to the price paid because Motorola is retaining one part of the business.

Nokia Siemens will get “significant synergies” from the acquisition, said Siemens spokesman Marc Langendorf. Nokia Siemens was able to finance the deal itself, without help from Siemens, he said.

Nokia Siemens secured a credit facility of about 2 billion euros with a syndicate of more than 20 international banks around the time it bid for the Ericsson assets last June.

Lower Spending

Over the past decade, telecommunications-equipment companies have combined to cope with declines in spending by some customers. France’s Alcatel SA acquired Lucent Technologies Inc. in 2006 to create Alcatel-Lucent, a Paris-based rival to Nokia Siemens.

Nokia Siemens is the world’s second-largest maker of wireless phone systems behind Ericsson and roughly even with Huawei, according to Redwood City, California-based researcher Dell’Oro Group. Motorola is the fourth-largest company in CDMA wireless systems, according to the researcher.

To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net; Hugo Miller in Toronto at 5724 or hugomiller@bloomberg.net.

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