Microsoft Corporation (NASDAQ:MSFT) announced its agreement to acquire Nokia Corporation (ADR) (NYSE:NOK)’s Devices and Services section, including the right to license the patent and to use the mapping services,  for €5.44 billion.

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Nokia deal

Under the terms of the agreement, the software giant will also acquire the mobile phone and smartphone business units including the Lumia & Asha brands and related production facilities of the Finnish smartphone manufacturer.

Microsoft Corporation (NASDAQ:MSFT) will also absorb approximately 32,000 employees of Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V). The Finnish company also agreed to transfer its long-term licensing agreement with Qualcomm, Inc (NASDAQ:QCOM) to the software giant.

Nokia will retain its patent portfolio and agreed to grant the software giant license to use its patents for 10 years while Microsoft also agreed to grant Nokia the right to use its patents in HERE services. The agreement provides an option for Microsoft to extend its mutual patent agreement with Nokia.

According to Microsoft Corporation (NASDAQ:MSFT), it would immediately pay €1.5 billion to Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) in three installments in the form of convertible notes worth €500 million each. The company will use its available cash overseas to fund the transaction, which is expected to close in the first quarter of 2014.

The software giant will also establish a new data center in Finland to serve its customers in Europe, and plans to invest $250 million over the next few years.

Nokia CEO to step down

Stephen Elop, CEO of Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V), will step down from his position to become executive vice president of Devices and Services. “Building on our successful partnership, we can now bring together the best of Microsoft’s software engineering with the best of Nokia’s product engineering, award-winning design, and global sales, marketing and manufacturing,” said Elop.

Steve Ballmer, chief executive officer of Microsoft Corporation (NASDAQ:MSFT) said “It’s a bold step into the future – a win-win for employees, shareholders and consumers of both companies. Bringing these great teams together will accelerate Microsoft’s share and profits in phones, and strengthen the overall opportunities for both Microsoft and our partners across our entire family of devices and services.”

Ballmer added that the acquisition will be accretive to the adjusted earnings per share of Microsoft Corporation (NASDAQ:MSFT) in the fiscal year 2015. He is also confident that the deal would provide significant revenue growth and profit opportunities for the shareholders of the company over the long-term.

Risto Siilasman, chairman of the board of Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) said, “For Nokia, this is an important moment of reinvention and from a position of financial strength, we can build our next chapter.” He added that selling Nokia’s Devices and Services business is the best path for the company and its shareholders.

Alex Khutorsky, managing director of The Valence Group, an M&A advisory investment bank said, “With respect to MSFT, it’s almost certain that negotiations have been ongoing for some time and were not spurred by Ballmer’s announcement. However, a deal may well have been facilitated by Steve Ballmer’s announced retirement – any obstacles caused by social issues (e.g., what happens to Elop; how long is Ballmer going to hang on, etc) –could have been mitigated.”

Shares of Nokia Corporation (NYSE:NOK) jumped 45 percent after Microsoft’s takeover news.