Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) may decide not to transfer its Indian production facility to Microsoft Corporation (NASDAQ:MSFT) when it sells its devices and services division. Citi analyst Ehud Gelblum and his team think Nokia is considering its options regarding the factory, which is tied up in a tax dispute with authorities in India.

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Nokia considers shutting India plant

They believe Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) is currently trying to decide whether it will shut down the fabrication facility in Chennai, India and move production to Hanoi, Vietnam. The Citi team notes that the Vietnamese facility has extra capacity. Or Nokia could decide to run the Indian factory as a contractor for Microsoft Corporation (NASDAQ:MSFT).

No matter what happens, they do not believe the tax problems in India will keep the deal with Microsoft Corporation (NASDAQ:MSFT) from being completed. They say Microsoft can’t just walk away from the purchase and pay the $750 million breakup fee. They note that the deal will fall through, however, if all regulatory authorities have not approved it by Sept. 3. That’s still more than five months away, and both companies will have to make their “best efforts” to obtain those approvals, as neither company is allowed to try to keep it from going through.

When might the Microsoft deal be completed?

The deadline set by Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) and Microsoft Corporation (NASDAQ:MSFT) was March 31, which is now just ten days away. Because of that short time frame, the Citi team ascribes about a 35% to 40% chance that the deal closes in either April or May. China is the last major approval the companies need to complete the sale, and regulators there only moved into the final phases of approval earlier this month.

A number of competing handset vendors have been protesting the deal in China in an attempt to say Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) will increase its royalty rates since it no longer will need cross-licensing agreements for handsets. However, Citi analysts don’t think those concerns are what China’s approval depends on. As a result, they believe those protests are irrelevant.

What happens if the Nokia – Microsoft deal is delayed?

If the deal between the two companies doesn’t close by the March 3 deadline, we move into that mid-period mentioned in the agreement, which lasts from March 31 through Sept. 3. The Citi team believes Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) will keep quiet on naming its next CEO as it determines when the deal might actually close.

At that point, they then expect Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) to reveal its new CEO and its strategy going forward. They anticipate that this could happen around the first quarter earnings date. If this happens, they believe the deal will close not long after March 31 because regulatory officials lose any strategic advantage they may have by approving it before March 31.

Citi continues to rate Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) as a Buy with a €7 per share price target.