Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) selling off its struggling Device and Services (D&S) business to Microsoft Corporation (NASDAQ:MSFT) is a positive sign and the share prices are expected to surge as a result, believes analyst Artem Beletski from SEB. The research firm had upgraded its SOTP valuation and is expecting an increase of EUR 1.3 per share to EUR 4.6.
Deal lowers the risk profile for Nokia
Through this deal, Nokia has increased the chance to up its earnings in the remaining parts of the company. Additionally, selling off the D&S segment has brought down the risk profile considerably and increased investor appeal, believes Beletski.
After selling of its D&S business, Nokia will focus on three businesses NSN, HERE and Advanced Technologies. The deal is clearly earnings-accretive, boosting Nokia’s historical EBIT margin for the first half from 4.2 percent to 12.1 percent.
Microsoft paid a substantial premium
Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) will sell its D&S business to Microsoft Corporation (NASDAQ:MSFT) for an agreed price of EUR 5.44 billion in cash. Both companies will look forward to completing this transaction by the first quarter of 2014. Microsoft will buy the ‘Smart devices and mobile phone business’ from Nokia Corporation (NYSE:NOK) (BIT: NOK1V) (HEL: NOK1V) and will receive patents on non-exclusive terms for 10 years.
SEB has assigned a fair value of EUR 2.5 billion or EUR 0.7 to D&S, which incorporates patents, compared to EUR 5.4 billion paid by Microsoft excluding IPR. Patent revenue is expected to be EUR 0.55 billion in 2014.
SEB has assigned a Hold rating to Nokia with a price target of EUR 3.30.
Indian fans not happy with the deal
Even though analysts are seeing the deal as strategically apt, in India, where Nokia Corporation (NYSE:NOK) (BIT: NOK1V) (HEL: NOK1V) was one of the most preferred smartphone brands, fans are not happy with the Microsoft-Nokia deal. The fact that there may be a strong chance of no more Nokia phones in the future is not acceptable to some of the customers who have an emotional connection with Nokia phones.
Dhruv Bhutani, a blogger whose love for Nokia inspired him to write on Technology, wrote “You grow up with a brand, see it becoming the world leader. You start off your career because of that brand. And then see it slowly die out… (it) doesn’t feel very good,” he said.
Yash Maheswari, a blogger who often reviewed Nokia devices, said “F**k the business sense behind it. I am too bummed for the personal touch & identity which Nokia had. That’s why it was special.”