Nokia Siemens Says Private Equity Review Ended With No Deal

Nokia Siemens Networks, the world’s second-biggest maker of telecommunications network equipment, will remain under the full ownership of Nokia Oyj (NOK1V) and Siemens AG (SIE) after buyout firms failed to come up with a compelling offer.

The company, based in Espoo, Finland, now plans to cut costs and take other measures to improve competitiveness as a standalone entity, it said in a statement today. Nokia shares fell to their lowest in 13 years after the company reaffirmed its commitment to the business.

For Nokia, restructuring the unit could be an unwelcome diversion for Chief Executive Officer Stephen Elop as he battles to improve the profitability of mobile phone operations. Nokia Siemens, which began operating in April 2007 as a 50-50 joint venture, began talking with private equity firms last year about selling a stake that could bring in more cash and open strategic options.

“There are now unmistakable signs of the European handset market starting to decline, and selling a mobile network company ahead of a slump is not an easy undertaking,” Tero Kuittinen, an analyst at Greenwich, Connecticut-based MKM Partners, said by e-mail.

Nokia fell 4.5 percent to 3.99 euros, the lowest since January 1998. Siemens added 0.9 euros to trade at 93.97 euros.

‘Not Shy’ About Sale

The joint venture was originally set up to run for six years. NSN, which has been unprofitable every quarter but one since its founding, has cut jobs and bought assets from Motorola Solutions Inc. in an effort to turn the business around.

Elop has made few comments about his plans for NSN as he focuses on an overhaul of handsets and readying a new product offering based on Microsoft Corp.’s Windows Phone 7. Nokia said May 31 that the second-quarter adjusted operating resultfor the handset unit could be “around breakeven” as competition pares prices.

“We are not shy about looking at alternative ownership structures, but we’re only interested in those that would create a solid base for long-term competitiveness and bring benefit to customers,” Nokia spokesman James Etheridge said by phone.

TPG Capital and Gores Group LLC were pursuing stakes in the equipment maker, people familiar with the discussions said in February.

Siemens Share Catalyst

For Siemens, which doesn’t consolidate NSN and books half of the losses generated, the decision to remain in the business removes a potential catalyst for its shares. JP Morgan Cazenove analyst Andreas Willi on July 7 called Siemens’ investment in NSN “a risk” that supports the use of a conglomerate discount when valuing the shares.

“NSN must become more profitable, that’s the most important task now,” Wolfram Trost, a spokesman for Siemens, said in a telephone interview.

Labor representatives at Nokia Siemens Networks GmbH & Co. KG, the German arm of NSN, in May reiterated a request for an initial public offering should Nokia and Siemens decide on changes in the ownership structure. An IPO would be "the best solution" from the perspective of employees, the German company’s works council then said.

No concrete measures for how the parent companies will improve competitiveness have been decided, Nokia spokesman Etheridge said.

To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong in Berlin at kwong11@bloomberg.net

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