Nokia basks in afterglow of M&A interest

Nokia caught the attention of investors after heightened speculation that the device manufacturer could be acquired by an industry heavyweight such as Microsoft or Huawei, with China's Lenovo also thrown into the mix, prompted a rethink on the company's underlying value.

According to Reuters, the various reports--none of which have been confirmed by any of the various players involved--have achieved at least one beneficial outcome for the Finnish company; investors have taken a good hard look at the company and now say the company's shares are probably undervalued following increasing signs of financial stability.

"The company's not in a crisis like it was a year ago," Mikael Rautanen, an analyst at equities research firm Inderes, told Reuters. "That makes Nokia now more likely to be a target of merger or acquisition."

The Wall Street Journal recently reported that Microsoft recently held advanced talks with Nokia about buying its devices division, although the talks fizzled out over price and concerns about Nokia's deteriorating market position, and are unlikely to be revived, unnamed sources told the Journal.

The Microsoft report came hot on the heels of a Financial Times article that said Huawei's Richard Yu had expressed interest in buying the Finnish company, although the Chinese company later denied plans to buy Nokia. Some market observers suggest that Microsoft, which has an agreement with Nokia on the use of the Windows Phone operating system, now has no choice but to buy Nokia because of the possible threat posed by the likes of Huawei--particularly in view of Yu's comment that Windows Phone was a weak point for Nokia.

Whatever Nokia's fate, the reports have all served to drive up the company's share price in the past week. Some analysts, who mostly have a price target of around €3 on Nokia shares, now say the company's underlying value, including intellectual property, its navigation business and stake in Nokia Siemens Networks, is closer to €5, Reuters said.

"If I just look at the different assets, I arrive at a value of that's clearly above €3," Swedbank analyst Hakan Wranne, told Reuters. He was wary of predicting a recovery but acknowledged there had been an improvement at the company.

Nokia's future is still far from certain, and the market was still shocked by the steep decline in first-quarter sales of cheaper feature phones. However, investors told Reuters that growth sales of Nokia's Lumia-branded Windows Phones and a better-than-expected cash position raised hopes the business is stabilising.

Still, Nokia has some way to go before it can convince the world that its bet on the Windows Phone will succeed, and that it is able to compete with leading smartphone manufacturers Apple and Samsung Electronics.

For more:
- see this Reuters article
- see this WSJ article (sub. req.)
- see this Bloomberg article

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