Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) expects to complete the sale of its handset business to Microsoft Corporation (NASDAQ:MSFT) this month. After closing the deal, Nokia will set out its long-term plan, most likely on or before its Q1 results on April 29, say UBS analysts Gareth Jenkins and David Mulholland. UBS has a Neutral rating on the stock with a €5.40 price target.

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Analysts estimate that Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) will have a net cash position of about €7 billion, close to 40% of its total market value after closing the deal. The Finnish company is likely to generate about €1 billion in free cash flow this year. So, it will have a healthy balance sheet flexibility for investments and/or cash returns. Analysts argue that Nokia may announce total cash return of €3.55 billion. The company has a variety of options.

Nokia may pay down debt

Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) will pay back €1.5 billion convertible to Microsoft Corporation (NASDAQ:MSFT) as part of the deal closure. As of February 2014, the company had €1.75 billion in bonds due. By the second quarter, UBS estimates that the Finnish company will have €3.25 billion lower gross debt on its balance sheet. So, the company may pay down further debt.

Issue a dividend

Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) is likely to reward its patient shareholders. But Jenkins and Mulholland believe that the company would opt for a sustainable dividend policy rather than a one-off dividend payment. UBS models a pay-out ratio of 60-75% over the next few years. The research firm doesn’t expect any special dividend.

Nokia may buy back equity

UBS says that buybacks are likely to be the primary way Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) institutes a cash return policy. The company is estimated to buy back shares worth €3 billion over the next two years steadily rather than as a tender offer. Under its existing program, Nokia been approved to buy up to €370 million stock by the end of June 2014.

Reinvest for growth

Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) has launched a €1.5 billion cost saving program through continuing business, and NSN operating expenses have fallen from €3.67 billion in 2012 to €3.13 billion in 2013. But the company still invests heavily in its core business. R&D accounted for 16% of its revenue in 2013. Analysts say Nokia is unlikely to seek any major mergers & acquisitions in the short-term. So, there are chances the company would go for partnerships that will require organic investments. UBS expects Nokia to cut its R&D expenses by €200 million in 2014.

Mergers & acquisitions

UBS says that Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) could be a consolidator in the telecom equipment industry. Based on the management commentary, the company is likely to partner to fill technology holes. There have been speculations that Alcatel Lucent SA (ADR) (NYSE:ALU) (EPA:ALU) may sell its Wireless Access to Nokia. After closing the deal with Microsoft Corporation (NASDAQ:MSFT), the company will have sufficient cash to buy Alcatel Lucent’s wireless access business.

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Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) shares plunged 1.70% to $7.51 at 11:56 AM EDT on Friday.