Nokia Corporation (ADR) (NOK): Strategic Options

Nokia 8Hermann / Pixabay

Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) decided after the deal with Microsoft Corporation (NASDAQ:MSFT) to sell its Devices and segment (D&S). It still has plenty of assets in its portfolio like location business services, patent portfolio, equipment, and lots of cash. In a research report, Bernstein Research analysts Pierre Ferragu, Jasmeet Chadha and Viral Gandhi analyzed several strategic options that Nokia can use, using these assets.Nokia Corporation (ADR) (NOK): Strategic Options

Assigning value to the assets

 After selling off their Devices and segment (D&S) arm, Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) is left with location business services, which is a significant asset in the portfolio for the Finnish firm. Additionally, the company has a cash-rich balance sheet, an impressive patent portfolio and a turned-around equipment business. Analysts have assigned a valuation of €4.9 for the collection of assets by considering the €5.8 billion cash on the Balance Sheet (€ 1.6 per share) and valuing Nokia Siemens Network (NSN) at €2.4 per share, HERE at €0.3 and the patent portfolio at €0.6.

Nokia may return excess cash to shareholders

Analysts are also expecting that Nokia may return all excess cash to shareholders through special dividends rather than a share buyback. Analysts believe that a special dividend has the highest possibility.

Acquisitions also a possibility

Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) may utilize the cash to make some large acquisitions; however, analysts rule out that the company will buy Juniper as it is very expensive at a 35 percent premium, giving it a value of €10.5 billion. This means Nokia would need to raise more than €5 billion in the debt market. A Juniper deal is not possible and a “share-based deal” may not be favored by Juniper’s board, believe analysts.

The wireless division of Alcatel Lucent could be a lucrative acquisition, helping Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) to become the next-best player after Ericsson. Additionally, the deal would be better in financial terms, as around €3.6 billion in cash will be needed, including the €0.7 billion restructuring charge. However, it is not sure whether the French government and Alcatel’s Board of Directors would approve a breakup of the company.

Nokia can fully acquire Alcatel Lucent, but the option will be less interesting for Nokia as it would “bring NSN back to being a generalist player,” which is against the management decision taken a few years back. Also, the deal will require the €7.7 billion, which will only work out if structured along with shares.

Combination of both acquisition and cash to shareholders

Analysts also feel that Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) may achieve both, i.e. returning half of the excess cash and retaining half for the opportunistic acquisition. Although analysts do not expect that Nokia will go this way, but there are slim chances that it emerges out as second best alternative.

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About the Author

Aman Jain
Aman is MBA (Finance) with an experience on both Marketing and Finance side. He has worked as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, reviewing tech gadgets, playing PC games and cricket. - Email him at [email protected]

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