Nokia Corporation (ADR) (NOK) May Buy NSN, But…

Nokia Corporation (ADR) (NOK) May Buy NSN, But…
<a href="">Hermann</a> / Pixabay

There have been reports recently that Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) might buy the other half of Nokia Siemens Networks. Some have said that the company could just buy NSN outright or that it could sell its handset unit and then use the money to buy the other half of NSN.

Nokia Corporation (ADR) (NOK) May Buy NSN, But…

Some analysts think this would provide a more stable business for the struggling Finnish company. Others however, don’t see Nokia’s acquisition of NSN as a good thing if it does happen.

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Why Nokia Is Still A Risk

One of the other scenarios that have been mentioned regarding Nokia and its stake in the joint venture it has with Siemens is the possibility of an initial public offering for NSN to spin it out separately. Another is that Nokia could sell the business to a private-equity firm.

Analysts Kai Korschelt and Johannes Schaller of Deutsche Bank issued a report to investors explaining how Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) might get a temporary boost if it does buy NSN or possible even spin it off or sell it. Nonetheless, they believe the company’s struggling handset unit poses too much of a risk for investors.

Nokia’s EPS Vs. Its Balance Sheet

According to the analysts, Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) could see its earnings per share increase from 4 cents in losses to a positive 5 cents per share. However, they estimated that the company may have to pay around €3.2 billion for the other half of NSN. That would be .5 times the 2013 EV / sales, and the analysts said it’s comparable to other similar transactions in the past.

If the company does pay that much for NSN, then it would take the company’s consolidated net cash from €4.5 billion to around €.8 billion, decimating its balance sheet. They also note that NSN itself is rather volatile on a quarterly basis. Its cost base and operating margins have been cut, and its free cash flow might have peaked last year. As a result, they don’t believe private-equity firms will be interested in NSN.

Concerns About Nokia’s Handset Business

The analysts also cited the same concern other have stated recently, which is that about half of Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s device gross profits come from its Symbian handsets, which they believe are under threat from low-end Android phones. The company’s feature phone sales did fall during the last quarter, although its Windows Phone units rose during that quarter. Its next quarterly report should provide some key information on the company’s progress.

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