Siemens AG (fka SI)

[Enterprising Investor]

Nokia Buys Siemens' NSN Stake for EUR1.7 Billion (7/01/13)

By Juhana Rossi and Sharon Terlep
HELSINKI--Finnish handset maker Nokia Corp. (NOK) will pay EUR1.7 billion ($2.2 billion) for Siemens AG's (SI) 50% stake in the two companies' telecommunications-equipment joint venture, they said Monday, confirming earlier reports of the deal.

Nokia will pay EUR1.2 billion in cash when the deal closes in the third calendar quarter, while the balance of EUR0.5 billion will be paid in the form of a secured loan from Siemens due one year from closing.

Nokia Siemens Networks will become a wholly-owned subsidiary of Nokia. Nokia said it wishes to see NSN develop itself as a more independent entity.

NSN's head office will remain in Espoo, Finland, and Nokia will keep in place NSN's existing management, including Chief Executive Rajeev Suri, but Siemens' name will be phased out of the company's name and branding.

Nokia Siemens Networks was established in 2007, combining Nokia's and Siemens's network businesses. Certain restrictions in a shareholder pact for NSN expired in April, freeing each partner to explore other options for its stake without the risk of a veto from the other party.

At the time, Siemens said it had no longer wanted to stay in the joint venture. "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," Joe Kaeser, Siemens' chief financial officer, said in a press release.

NSN struggled financially for many years after its launch. However, its profitability has improved rapidly in the past year due to the growing demand for new mobile broadband infrastructure and after massive corporate restructuring.

In 2012, NSN reduced its headcount by approximately 20%, and it aims to reduce its annual operating expenses by more than EUR1 billion by the end of 2013, compared with the end of 2011. NSN had 56,670 employees at the end of March.

Some analysts say the entire NSN business, if it were a publicly-listed company, could be worth more than EUR7 billion including debt. Estimates of the valuation of the venture in a takeover scenario have been lower, with analysts pegging it roughly in the range of EUR4 billion-EUR5 billion.

J.P. Morgan Chase & Co. (JPM) is financing a part of the deal, a person familiar with the matter said.

Nokia recently held talks with Microsoft Corp. (MSFT) about selling its handset business, but those discussions faltered over price and worries about Nokia's slumping market share, people familiar with those talks said.

Nokia estimates that it ended the second quarter of 2013 with gross cash of between EUR9.2 billion-EUR9.7 billion and net cash of EUR3.7 billion-EUR4.2 billion. For comparison purposes, the company said that if the NSN deal had closed during the second quarter it estimates it would have had net cash of between EUR2.0 billion-EUR2.5 billion, reflecting the deduction of the purchase price of EUR1.7 billion from Nokia net cash.

Write to Juhana Rossi at [e-mail]