Nokia paying $2.21B for Siemens' stake in NSN

Nokia (NYSE:NOK) agreed to pay $2.21 billion to acquire Siemens' 50 percent stake in their infrastructure equipment venture Nokia Siemens Networks. The transaction is expected to close during the third quarter, at which time NSN will become a wholly owned subsidiary of Nokia.

Nokia will pay $1.56 billion in cash, for which it has obtained bank financing, when the transaction closes. The balance of $652 million will be paid in the form of a secured loan from Siemens one year later. J.P. Morgan Chase is financing a part of the deal, according to the Wall Street Journal, citing "a person familiar with the matter."

Nokia is paying much less than expected for Siemens' stake. Analysts had valued all of NSN at $6.5 billion to more than $9 billion.

Rajeev Suri will continue as NSN's CEO, and Jesper Ovesen will continue as executive chairman of NSN's board, which will adjust to the changing ownership structure, Nokia said. Further, NSN's operational headquarters will remain in Espoo, Finland, though the company is expected to retain a strong presence in Germany, including its major hub in Munich.

Naturally, the Siemens name will be phased out from NSN's corporate name and branding upon the transaction's close. This will likely not be the end of changes for NSN, as Nokia said it will "continue to strengthen the company as a more independent entity."

Nokia CEO Stephen Elop indicated during a conference call that the company, which is focused on resurrecting its smartphone business, may seek partners or consider other alternatives for the network gear company. Elop noted that Nokia has consistently said there is a range of options it would consider for NSN over time. "All of those options remain open," he added.

Prior to Nokia's announcement that it would buy Siemens' NSN stake, analysts had suggested that Nokia could ultimately sell its interest in NSN, find a new partner or initiate an initial public offering for the infrastructure business.

Indicative of Nokia's struggles, the company disclosed that it held estimated net cash of $4.82 billion to $5.48 billion at the end of June, down from nearly $5.87 billion it had at the end of March.

NSN was previously a problem child for Nokia and Siemens but turned around its fortunes thanks to a strategy announced in November 2011 that entailed mass layoffs and a targeted business plan that focused on mobile broadband.

At the end of 2013's first quarter, NSN counted some 56,700 employees, a reduction of 11,900 compared to the year-ago quarter. During the first three months of 2013, NSN contributed $274 million to Nokia's net cash position and achieved underlying profitability for the fourth consecutive quarter and positive cash flow for the sixth consecutive quarter.

"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, according to Bloomberg. "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."

NSN was established on April 1, 2007, as a 50-50 joint venture combining Nokia's Networks Business Group and Siemens' carrier-related operations for fixed and mobile networks. The six-year-old shareholder pact between NSN's parents expired in April, and Germany-based Siemens made no secret of its desire to exit the venture.

Siemens intends to strengthen its focus on the core areas of energy management, industry and infrastructure as well as health care, said Siemens CFO Joe Kaeser.

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

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