Nokia Corporation and Siemens AG announced today (1 July 2013) that Nokia will buy out Siemens’ entire 50% stake in their Nokia Siemens Networks joint venture.
Nokia will pay Siemens €1.7 billion (£1.4 billion), of which €1.2 billion will be paid in cash at the closing of the transaction. The balance of €0.5 billion will be paid in the form of a secured loan from Siemens due one year from closing. Nokia said it has obtained committed bank financing for the €1.2 billion cash portion.
The deal is expected to close during the third calendar quarter of 2013. Upon closing of the planned acquisition, Nokia Siemens Networks will become a wholly owned subsidiary of Nokia and the Siemens name will be dropped.
Stephen Elop, president and CEO of Nokia, commented: ‘With its clear strategic focus and strong leadership team, Nokia Siemens Networks has structurally improved its operational and financial performance. Furthermore, Nokia Siemens Networks has established a clear leadership position in LTE, which provides an attractive growth opportunity. Nokia is pleased with these developments and looks forward to continue supporting these efforts to create more shareholder value for the Nokia group.’
Joe Kaeser, Siemens CFO, commented: ‘With this transaction, we continue our efforts to strengthen our focus on Siemens' core areas of energy management, industry and infrastructure as well as healthcare. The full acquisition of Nokia Siemens Networks by Nokia offers an attractive opportunity to actively shape the telecom equipment market for the future and create sustainable value.’
Nokia Siemens Networks was established on 1 April 1 2007, as a joint venture combining Nokia's Networks Business Group and Siemens' carrier-related operations for fixed and mobile networks. Nokia Siemens Networks has since become a major provider of telecommunications infrastructure around the world. The company's focus is in offering innovative mobile broadband technology and services.
Nokia will continue to consolidate Nokia Siemens Networks for financial reporting purposes as well as continue to strengthen the company as a more independent entity.
Accordingly, Nokia plans to retain the existing management and governance structure at Nokia Siemens Networks, with Rajeev Suri continuing as CEO and Jesper Ovesen continuing as executive chairman of the Nokia Siemens Networks board of directors, which will adjust to the changing ownership structure.
Nokia Siemens Networks' operational headquarters will remain in Espoo, Finland, and the company will continue to have a strong regional presence in Germany, including its major hub in Munich. Nokia supports the current management plan, including the already in-progress Nokia Siemens Networks restructuring plan that remains unchanged as a result of this announcement.
In accordance with this transaction, the Siemens name will be phased out from Nokia Siemens Networks' company name and branding. Nokia and Nokia Siemens Networks plan to confirm the new name and brand at the closing of the transaction.
At the end of the first quarter 2013, Nokia had gross cash of €10.1 billion and net cash of €4.5 billion. Nokia currently estimates that at the end of the second quarter 2013, Nokia had gross cash of between €9.2 billion - €9.7 billion and net cash of between €3.7 billion - €4.2 billion.
For comparison purposes, if the transaction to purchase Siemens' 50% stake had been closed during the second quarter 2013, Nokia currently estimates that it would have ended the second quarter of 2013 with gross cash of between €9.2 billion - €9.7 billion and net cash of between €2.0 billion - €2.5 billion, reflecting the deduction of the purchase price of €1.7 billion from Nokia net cash.
Chris Nicoll, principal analyst at Analysys Mason, commented: ‘Nokia absorbing NSN is a strategy move to strengthen both the NSN and Nokia brands by leveraging both ends of the mobile connection – similar to what Samsung is doing. With a resurgence by the Nokia with the Lumia devices and growing LTE leadership on the part of NSN, Nokia is taking advantage of the opportunity to re-establish the company’s mobile market leadership in the growing LTE market, particularly in the European markets where NSN is an incumbent network supplier in many networks.
‘Nokia needs to make some significant investments in NSN to address concerns in three areas: NSN’s overall loss of market share has created concerns regarding NSN’s long-term viability. Delays with their LTE roadmap (specifically EPC - evolved packet core) causes concerns; and the need for further radio developments for the Single RAN solution need to be addressed to strengthen the core LTE roadmap.
‘The consolidation in the mobile market continues, with Nokia reacquiring the networking spin-off NSN. With the increased dependence on the device to take advantage of advanced network features such as carrier aggregation and MIMO, the re-acquisition makes sense from a market perspective. With Samsung also leveraging its industry Galaxy line and Huawei becoming more aggressive with its own device portfolio, the latest move my Nokia leaves Alcatel-Lucent (ALU) and Ericsson without their own device strategies.
‘We are seeing the impact of the total mobile ecosystem with vendors such as Samsung and Huawei taking an end-to-end view. Samsung has used it handsets to launch advanced network features such as LTE-A already and I expect Huawei to do the same. This would be possible using a partnership, but we have not seen that actually happen yet. Apparently Nokia also thought it needed full control over both sides of the connection and I expect it will use the control to speed to market more advanced networking features.
‘Nokia, Huawei and Samsung all boast the end-to-end ecosystem of devices and RAN/networking solutions. Huawei is just beginning to leverage its device business, while Samsung’s is obviously well-matured. NSN already underwent its operation to pare down its wireless business (dropping Wi-Max), as well as fixed BB, BSS and IPTV. The resulting focus on its GSM/UMTS base and path to upgrade to LTE, as well as Single RAN base stations puts the new Nokia in a good position assuming it can capture the business from its existing customers. Wi-Fi remains a weak area for the company in the face of growing strength of Cisco in both the licensed and unlicensed small cell area.
‘ALU is still trying to find its market position and is rationalising its own product lines, in refocusing on core market areas. However, the company has significant assets in network intelligence, radio management, and interference management that could easily serve as the underpinnings of a new network solution spanning both macro networks and small network solutions.
‘Ericsson is still a strong player in LTE, but needs to beef-up its small cell/Wi-Fi strategy to keep up with the findings from our surveys with operators that show Wi-Fi is an important element in their customer satisfaction/retention strategies,’ concluded Nicoll.