Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) revealed its agreement to acquire the entire 50 percent stake of Siemens AG (ADR) (NYSE:SI) in its joint venture- the Nokia Siemens Networks (NSN) for €1.7 billion.
Nokia Acquisition Of Nokia Siemens Network
According to the press statement of the Finnish smartphone manufacturer, its board of directors and the managing and supervisory boards of Siemens AG (ADR) (NYSE:SI) approved the transaction. Following the completion of the transaction, Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) will become the sole owner of Nokia Siemens Networks.
Analysts at Nomura Equity Research believe that the agreement between Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) and Siemens AG (ADR) (NYSE:SI) boosts the stock of the Finnish smartphone manufacturer. However, the analysts remained concern over the handset unit of the company.
According to Nomura Equity Research analysts, Stuart Jeffrey & Woo Jin Hu said, “While we view the transaction positively for Nokia, our fundamental concerns remain. We still see limited traction with Windows Phone’s ecosystem, and still view Nokia’s hardware differentiation as limited in scope and appeal.” The analysts remained cautious on the stock.
Jeffrey and Woo said the acquisition price of €1.7 billion added €0.4 per share on the stock of Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V). The analysts emphasized that the Finnish smartphone manufactured had a good deal saying that they previously valued NSN at 0.5x NSN sales (€6.6 billion), which reflects the mid-to-high single-digit operating margin outlook of the company.
Nokia Evaluating Its Long-Term Core Strategy
The analysts also suggested that Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) may be evaluating its long-term core strategy after its negotiations to sell its handset unit to Microsoft Corporation (NASDAQ:MSFT) stalled due to the price and failure to gain market share.
Jeffrey and Woo indicated that the Finnish smartphone manufacturer might be shifting its emphasis from devices towards networks and location-based services. In addition, the analysts said, “While this does seem a possible outcome, we note that Nokia is retaining full flexibility by not fully integrating NSN in Nokia.” The analysts speculated that Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) might be planning for an IPO or other forms of disposal.
The analysts estimated that the debt of Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) would likely decline to less than €2 billion, and the company has the ability to support its target debt level without anticipating liquidity issues. On the other hand, Jeffrey and Woo think that the company’s ability to enter further deals will be limited.
Furthermore, the analysts noted that the company could resolve the relative weakness of NSN in North America by acquiring the wireless unit of Alcatel-Lucent. Jeffrey & Woo estimated that such transaction may cost around €2 billion to €2.8 billion.
