Nokia Oyj (NOK1V) agreed to buy Siemens AG (SIE)’s share in a 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 doesn’t plan to integrate Nokia Siemens and may still decide to seek partners, Chief Executive Officer Stephen Elop said on a conference call.
The Finnish handset maker fighting to come back in the smartphone industry jumped as much as 10 percent in Helsinki trading. The purchase price values the venture, which became profitable last year, at 3.4 billion euros, less than at least 5 billion euros projected 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.”
JPMorgan Chase & Co. (JPM) is providing Nokia financing for the transaction, according to two people familiar with the matter who asked not to be identified because the details are confidential. Siemens was advised by Goldman Sachs Group Inc. Elop declined to comment on financing details.
Nokia rose as much as 29 cents and closed 3.7 percent higher at 2.95 euros in Helsinki, valuing the company at 11 billion euros. Siemens gained 2.7 percent to close at 79.72 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 Munich-based Siemens expect to complete the deal in the current quarter.
Nokia Siemens, which reported 2012 revenue of 13.8 billion euros, is evaluating a sale of manufacturing plants in Finland, India and China for as much as 600 million euros and to outsource production, said a person familiar with the matter. The plan is preliminary and may not result in a transaction, the person said.
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.
Nokia Siemens had about 56,700 employees at the end of the first quarter and supplies companies such as Deutsche Telekom AG and Vodafone Group Plc. Cost cuts helped the equipment maker more than triple operating profit excluding some items to 778 million euros last year.
Nokia Siemens is the most recent technology venture in Europe 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.
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.
“There’s a range of options that could exist for NSN over time,” Elop said during the call. “All of those options remain open.”
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.
The cost to protect Nokia debt against non-payment for five years with credit-default swaps rose as much as 1.6 percent to 583 basis points, suggesting a deterioration in creditworthiness, according to data compiled by Bloomberg. That insurance cost has come down by more than half from a record on July 18.
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.
The deal may help 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)
“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,” 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.