Market pleased with Nokia’s NSN purchase

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br fones Reuters File photo of various models of Nokia and Siemens mobile phones in a shop in Kaiserslautern June 19, 2006. Nokia shares surged on July 1, 2013, after it announced plans to buy out partner Siemans AG's share of their valuable network equipment joint venture, betting on the technology to run 4G networks after it stumbled as a maker of smartphones. Loss-making Nokia gains full control of the profitable venture Nokia Siemens Networks (NSN) for $2.2 billion, a cheaper than-expected price, analysts said, although they also noted the acquisition would put pressure on Nokia's balance sheet. REUTERS/Michaela Rehle/Files (GERMANY) (BUSINESS TELECOMS)

Terhi Kinnunen Helsinki

Nokia shares surged yesterday after it announced plans to buy out partner Siemens’s share of their valuable network equipment joint venture, betting on the technology to run fourth-generation (4G) networks after it stumbled as a maker of smartphones.

Loss-making Nokia gained full control of the profitable venture, Nokia Siemens Networks (NSN), for $2.2 billion (R21.7bn), which was cheaper than expected, analysts said.

“With this transaction, Nokia buys itself a future, whatever happens in smartphones and feature phones,” Bernstein analyst Pierre Ferragu wrote in a note to clients.

However, the cost to the balance sheet is still a risk for a company that is burning through cash to keep its handset business running.

Nokia will pay e1.2bn in cash and the other e500m in the form of a secured loan from Siemens to be repaid later.

Bloomberg figures showed Nokia shares were 6.9 percent higher at e3.04 (R39) just before midday in Helsinki. Siemens had gained 1.5 percent to e78.83 on the Frankfurt exchange.

Analysts said it was good news for the German company to execute a plan allowing it to exit a business that had weighed it down with high restructuring costs.

Morgan Stanley said the price Siemens got was at the low end of estimates, but it was encouraged by the fact that this was a “clean solution”.

“Despite the optically low price, we believe this is the best possible outcome for Siemens shareholders.”

Nokia’s future has been cloudy since it fell behind Apple and Samsung Electronics in the smartphone race, making the decision to switch to Microsoft’s untried Windows software in 2011.

In contrast, NSN turned profitable in the second quarter of last year after slashing costs and as its focus on 4G long-term evolution (LTE) networks began to pay off. NSN’s adjusted earnings before interest and taxes amounted to e196 million in the first quarter of this year.

NSN “has established a clear leadership position in LTE, which provides an attractive growth opportunity,” said Nokia’s chief executive, Stephen Elop.

He said NSN would continue to run as an independent entity. – Reuters

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