Report: Microsoft's Nadella, Gates and others initially opposed Nokia deal

Microsoft (NASDAQ:MSFT) CEO Satya Nadella, co-founder Bill Gates and other board members and executives initially were against former CEO Steve Ballmer's idea to purchase Nokia's (NYSE:NOK) handset business and licenses its patents for $7.5 billion, according to a Bloomberg BusinessWeek report.

The report, citing unnamed sources, said that Ballmer's relationship with Microsoft's board hit a low point when he shouted at a June 2013 board meeting that if he didn't get his way he couldn't be CEO. Ballmer had pushed heavily for the Nokia deal; he announced in August he would retire and Nadella replaced him a month ago.

According to the report, several Microsoft directors and Gates, Ballmer's longtime friend and until recently Microsoft's chairman, were initially opposed to the Nokia deal. Nadella was as well but then later changed his mind, the report said.

"Nokia brings mobile-first depth across hardware, software, design, global supply chain expertise and deep understanding and connections across the mobile market," Nadella said in a statement to Bloomberg BusinessWeek. "This is the right move for Microsoft." Microsoft expects the deal to close by the end of the first quarter.

Microsoft spokeswoman Dawn Beauparlant said Ballmer declined to comment, according to the report. Ballmer is still a member of the board, as is Gates, who stepped down as chairman to become Nadella's technology adviser.

Last month Microsoft announced a number of new firms are planning to use its Windows Phone software, many of which were initially skeptical about the mobile OS. Nokia made more than 75 percent to 80 percent of the Windows Phones sold last year, so getting more partners, especially for low-end Windows Phones in markets such as China and India, is crucial. Microsoft announced it is now working with Foxconn, Gionee, Lava (Xolo), Lenovo, LG Electronics, Longcheer, JSR, Karbonn and ZTE on Windows Phones.

At the heart of the debate with Ballmer is the future of Microsoft--will it be more of a software company or a company that combines hardware and software? Ballmer was clearly pushing for the latter, as seen in his reorganization of the company's structure last year. Nadella has already undone some of that.

Microsoft earlier this week confirmed that Tony Bates, executive vice president of business development and evangelism, will leave the company, to be replaced on an interim basis by Eric Rudder. Chris Capossela will become executive vice president and CMO, and the company's current marketing chief, Tami Reller, will be leaving after a transition period. Mark Penn, a former Democratic strategist, was named chief strategy officer. Bates had been opposed to the Nokia deal and remained so, the report said.

At the June 2013 board meeting, Ballmer had been told the board didn't back his plan to acquire Nokia's handset and HERE mapping units, according to the report. Ballmer eventually got most of what he wanted, but his pushback on the Nokia deal soured relations with the board that had already been growing weaker. The board was concerned about Microsoft's direction under Ballmer. The board had said the first pass at the deal, which had included the HERE unit, was too expensive and complex.

Speaking this week at the University of Oxford, Ballmer said that Microsoft is a well-capitalized company and that if it does not succeed, "it's about catching the next wave of innovation."

He talked about the opportunity Microsoft had missed. "In the last 10 years, there are things that didn't go so well," Ballmer said. "We would have had a strong position in the phone market. The thing I regret is that we didn't put hardware and software together quicker."

For more:
- see this Bloomberg BusinessWeek article
- see this CNET article

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