Nokia Purchase Could Cost Buyer €1.5 Billion in Severance Pay


Nokia Corporation is expected to report earnings on Thursday October 18th. The company is in a position, which many investors see as do or die. If Nokia Corporation does not change or improve, the company could face trouble remaining a going concern. We also highlight some interesting notes on severance pay (which could total 1.5 billion euros), if the company is indeed bought out.

Nokia Purchase Could Cost Buyer €1.5 Billion in Severance Pay

ABG Sundal Collier is a Finish based firm, which has been following Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) for quite a while. The firm has been bullish on the company, even as the stock hit a low of $.163, and many investors thought the struggling phone maker would go bankrupt. ABG analyst, Per Lindberg thinks that the upcoming earnings ‘may strengthen the impression that Nokia is well placed to return to lasting profitability once its Lumia family – refreshed with WP 8 smartphones and Windows 8 tablets – has entered volume production, presumably by the end of 2012.’

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Investors and analysts are fearful about operating cash flow. However, ABG thinks that Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) will likely break-even, after working capital and restructuring disbursements, which will allow the net cash balance to remain around the EUR 4bn mark. The firm still thinks that Nokia has a 150% upside from today’s price.

Not everyone is convinced that Management can successfully turn around the company. Credit Suisse AG (NYSE:CS) recently downgraded the Finished based phone company, due to concerns over cash flow. Credit Suisse analysts are also sceptical that even on a liquidation basis, the company is overpriced. They note that  by taking into account factors such as cost of shutting down D&S, selling NSN (and subsidizing 50% of cash restructuring to potential acquirer), valuing Navteq, and the potential value in IPR, brand and balance sheet items, there is €€ 8.2bn of value in Nokia on NAV basis.

Credit Suisse also notes something that many analysts have ignored. Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) has a large amount of employees, and many companies would be hesitant to take on the cost of maintaining or firing them.  CS states that ‘no single party may be sufficiently motivated to buy a company with 114K employees (38% in Europe).’ The total costs could be 1.5 billion euros, as detailed below.

Employee severance to the tune of €1.5bn

The 1.5 billion euro cost analysis is based on the average wages & salaries expense for an employee at Nokia group in 2011 was €€ 47K, and CS has assumed 5% increase per year for both 2012 and 2013 to account for inflation. As such, using an average wage & salary expense per employee of €€ 52K per year for the remaining 29K employees in its D&S business at the end of 2013 gives CS an employee severance cost of €1.5bn.

Disclosure: No position