Nokia Corporation (ADR) (NOK) An Acquisition Target?

Nokia Corporation (ADR) (NOK) An Acquisition Target?
Hermann / Pixabay

Recently there have been reports that some companies are considering to acquire Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V). Well, Huawei Technology Co Ltd (SHE:002502) and Microsoft Corporation (NASDAQ:MSFT) to be more precise. The Wall Street Journal reported last week that Microsoft Corporation (NASDAQ:MSFT) is in advanced discussions with the Finnish mobile phone maker. Given the vast portfolio of Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s valuable assets and low share price, Societe Generale SA (OTCMKTS:SCGLY) analysts believe that the speculations will continue.

Nokia Corporation (ADR) (NOK) An Acquisition Target?

Nokia’s Assets

Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s current share price is far lower than the company’s underlying asset value. It has several attractive assets for a buyer that is already a handset manufacturer, Societe Generale said in its latest research report. Nokia brand itself is valued at $21 billion, according to Interbrand. Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) has built its own logistics operations in about 100 countries, and the company has a full understanding of how to localize a product. Navteq, which Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) acquired in 2007 for $8.1 billion, could prove to be a valuable asset to any handset maker. It has been so tightly integrated into Nokia that it will be difficult to separate Navteq from the Lumia maker.

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Nokia Brand Value

However, the most interesting asset of Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) is its IP portfolio that generates about 500 million euros a year for the company. It will be a dream asset for any manufacturer that doesn’t have an extensive IP portfolio. Societe Generale estimates that Nokia’s IP portfolio is worth about 11 billion euros, or 3 euros a share. Nokia Siemens Network (NSN) has been struggling recently due to fierce competition. But it has refocused, and has now become a profitable venture. Societe Generale says that the potential acquirer may leave the NSN alone because there are little synergies between the handset and infrastructure businesses.


Potential Acquirer: Huawei

A representative of the Chinese telecom equipment maker recently expressed interest in buying Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V). Analysts believe that Huawei Technology Co Ltd (SHE:002502) could be only interested in Nokia’s handset business because it already has a strong position in telecom equipment business. If it chooses NSN as well, that will be a big political challenge for a Chinese company given the U.S. security concerns.


Another issue for Huawei would be Nokia’s agreement with Microsoft Corporation (NASDAQ:MSFT). The Finnish company pays Microsoft $250 million per quarter in licensing fee. And there is an exclusivity clause in their agreement that prevents Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) from using Android operating system in its smartphones for a few years. Huawei describes Windows Phone OS as weak as the licensing fee doesn’t justify smartphone volume sales.

Furthermore, Microsoft Corporation (NASDAQ:MSFT) has poured in plenty of money into Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V), which is yet to be repaid. If Huawei buys Nokia, the purchase will trigger the repayment of that sum, which Societe Generale estimates to be about $750 million currently. If Huawei can resolve these issues, it can add Nokia’s valuable assets under its umbrella.

Potential Acquirer: Microsoft

Societe Generale analysts believe that the software giant can be a stronger contender. Microsoft Corporation (NASDAQ:MSFT) is desperate to make its Windows Phone operating system successful. However, Windows Phone-based Lumia smartphone sales haven’t been great so far. Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) remains the only company to use the OS across its full range of smartphones, and that’s mainly due to the contract signed in April 2011.

Nokia Smartphone Share

However, Microsoft Corporation (NASDAQ:MSFT) may want to let Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) flourish independently, because it will create an impression that Windows Phone is a competitive OS, so other manufacturers would consider Windows Phone for their own handsets.

In certain scenarios, Microsoft Corporation (NASDAQ:MSFT) would be forced to get involved. If Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) decides to stop the production of Windows Phone-based smartphones, either due to financial hardship or by trashing away its agreement and starting the production of Android smartphones. In that case, Microsoft Corporation (NASDAQ:MSFT) will have no other option but to buy the Finnish company if it wants its Windows Phone OS to remain viable. Another scenario is the acquisition of Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) by Huawei or any other manufacturer that is ready to end the agreement withMicrosoft Corporation (NASDAQ:MSFT).

Let’s see who wins the war and gets Nokia’s valuable assets. Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) shares were down 0.26 percent to $3.79 at 12:51 PM EDT.

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