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June 08, 2012

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Listed below are links to weblogs that reference Quick Thoughts on Nokia as Takeover Target (Samsung, Facebook, Microsoft and others):

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Antoine RJ Wright

Interesting... Samsung would be likely, but probably not because as you already note, they have followed and conquered Nokia in everything but networking and mapping. If Samsung wants to push their connected home approach, it's possible Tizen and NSN does it for them, but only if such a move keeps them agile.

Facebook actually would want NSN. For them, NSN would be the insurance that the platform stays optimized for carrier relationships. They would be smarter to sell off hardware, but keep related IP, and then to pitch non- behavioral software to a company that simply wants differentiation but not get sued in the process.

MS would want to do this, but it would be a fight with governments again. The investigation would stem from prior relationships, Elop, and the speed of descent without success for MS despite marketing investments.

Merging with RIM needs to be seen as an option. Or, at the very least a spin off of NSN, merging of it with a split RIM (BES and hardware), then repitching the brand of Nokia again as "connecting people," but on that deep packet level.

Apple is possible. Because if th profiles about Tim Cook are as I think, he might see opportunity with Nokia take over to ensure logistical flexibility and engineering expertise to ensure their next gen experiences (Siri, networking, humanities, and creative as service).

All in all, interesting. And that's what happens when I miss news to talk at conferences. Perhaps Tomi I should just tag along in your luggage and catch the beats as you and Q create new mental roads for us all. :)

Tomifan

Good text, Tomi. Nice overview of Nokia units and their value. I'll be nice and skip all the usual ranting and finger-pointing.
Instead, let's say I like the "four units" split you did for Nokia's mobile phone unit (I'm adding feature phones to those three smartphone units, reason follows).
The most efficient thing to do would be to keep MS co-operated Lumia unit, separated from Symbian, MeeGo & Feature phones. Take firm grasp of Microsoft's balls and tell them that Nokia is going to do either all four o rthen just the three others. As I have pointed out before, MS does not really have an option. Change the direction and suck the juice from big giant MS. Get mobile office apps to all smartphone lines - for free.
But keep these babies in same house. Whether it's Nokia bought by someone or Nokia the original standalone company, those units could totally benefit each other. There are few really good UI gimmicks in WP - adopt them to others. Swipe UI to Symbian and Asha? Sure! (They claim touch screen Ashas have it already). Don't break up the good stuff, those four units would be worth more together than broken to pieces. No matter who owns the bunch.
My 2c.

Tomifan

Tomi:
Why do you say Microsoft does not want Navteq? Go to http://www.bing.com/maps/ and see bottom right corner. Bing maps have silently shifted to Navteq maps already.

So Vatar

I hope for a bidding war, I really do. But will it happen?

This is a high stakes game for the big boys. It is clear that Nokia in the current trajectory cannot survive on its own. Most players are mentioned by Tomi, but there at least 2 more that might be very interested: NSN and smart phones could be a great fit for Cisco. And don't forget Larry Ellison, Oracle does a superb job of buying companies and integrating them into their existing operations.

In addition to Oracle and Cisco and the companies named above by Tomi I can see consortiums of companies bidding for Nokia and - after successful bid - dividing the loot. There are many possible combinations.

One could be Microsoft and Cisco (maybe including Facebook). Windows Phone would power the facebook phone, Cisco would get NSN and make a deal for business handsets. Patent portfolio would be shared.

Oracle could also team up with Cisco, Larry would get additional firepower against Google / Android (I am pretty sure Larry did not like how the infringement lawsuits against Android went, and he is not the type to give up).

I also would not rule out HP as serious bidder again. They would be interested in the handset business (again Cisco or a Chinese for NSN), and could team up with Canon (printing business would be combined, imaging business would be aligned across all platforms, and HP would concentrate on Server / PC / Tablets including HP branded phones).

Many more combinations can be beneficial, including bids from firms outside the Hi-tech industry that want to buy in.

Interesting time, and I hope there will be a bidding war sooner than later. The longer Elop is allowed to continue, the less interesting Nokia gets for any potential buyer.

eduardo

"The Lumia Windows Phone unit is moderately successful in North America and desperately needed by Microsoft. So sell that unit to Microsoft"

That would be terribly embarrassing for Microsoft, an admission that WP 7 is a failure that ran its primary oem into bankruptcy. And who is to say that Microsoft would know how to run a mobile phone company?.

cke

In down times when the industry must consolidate the players, the luckiest ones are usually the smallest and most vulnerable. They are cheap and easy to buy and get bought first. The stronger ones are too expensive, have cash so they're not in a hurry, are the last to entertain offers. So all of the would-be potential buyers at an earlier time have already made their purchases and are no longer in the buying market when the strongest ones finally come around looking for buyouts. Not optimistic for Nokia.

eduardo

If the parts are worth more than the price, then you could get a pure investment banker bid that, if successful, would just sell the parts off to whoever wanted them. But I think Samsung would find Nokia much more valuable than its parts could be sold for, and so would make a higher bid.

noel

today i am very glad that Nokia has retake the good way of business. they are also biting the competition with Android market.

Dipankar Mitra

I initially thought it makes no sense for Samsung to acquire Nokia, except for the Nokia patents (we all know Samsung is being royally screwed by Apple in patent litigations). Now that I've read this, I guess there are more reasons for Samsung to buy Nokia. But once they do, there's going to be a terrible mismatch of organization cultures. Having worked at both Korean (LG) and Finnish (Nokia) handset makers, I can imagine the disaster of a merger it would be, from a org culture perspective.

m

1) Nokia's assets may not be worth as much as you think. They've already relinquished control of (but not financial interest in) many of them (possibly purposefully to avoid corporate raiders).

http://seekingalpha.com/article/624961-tales-from-nokia-patents-kidnapped-by-wicked-trolls-or-saved-by-kindly-godfathers-part-one

2) MS already has rights to many of Nokia's patents --- not just to *use* them, but to license them to others!

http://gametimeip.com/2012/03/07/another-smart-move-from-microsofts-patent-licensing-group/

Quote: Microsoft already “secured a license to the Nokia patents now acquired by MOSAID” and retains “a passive economic interest in the revenue generated from the licensing of those patents to third parties.”

Yes folks, another company acquires Nokia's patents, and Microsoft gets a cut of the spoils. The so-called "deal" with Microsoft has already sold to MS much or all of what they want from Nokia.

3) The big question is, what is the COST to a potential buyer, of the contractual obligation to MS. You can't just buy Nokia and say "Deal's off". Certainly, since it was a deal penned by MS employees at Nokia (ie. Elop) and MS, it will be very favorable to MS should anyone try to break the contract.

Conclusion: The valuable parts of Nokia were already sold to MS with the "deal", and the price was *less than nothing* (with minimum royalty payments to MS for licensing WP being only "slightly less" than the support payments from MS, plus MS already getting royalties from Nokia patents, the net cash flow is from Nokia to MS. The reason they appear to be a company being bled dry, instead of a company receiving ongoing lucrative investment capital, is that they are a company being bled dry). What Nokia got out of the deal is a promise of having a finger in the promised success of WP.

If Nokia is sold, MS will retain rights to some of Nokia's assets. That severely reduces the value of Nokia to any other company. Elop really signed a suicide pact, to ensure that it was Windows or Death.

eduardo

From the seekingalpha link above regarding the sale of the patents to Sisvel:


"this deal with Sisvel may be a way of protecting Nokia from a hostile takeover by a large, nouveau-riche, 4G-patent-poor manufacturer of cell phones, such as Apple (AAPL)"

Louis

I agree that Nokia doesn't seem like an attractive takeover target.

- No potential buyer wants all the business or isn't a huge cultural mismatch.

- A lot of the IP assets are already licensed or otherwise not available for a "clean" sale.

- The MS contract would, undoubtedly, be very expensive to get out of.

- Any strategy transition would need to be deeply bankrolled.

So, basically, Tomi's dream scenario is something like:

- A "Symbian restoration", ending the MS alliance

- Future strategy is Maemo/Moblin/Meego/Tizen software, hardware an Intel platform that nobody ships product on right now

- Reboot the Ovi brand

This all looks really, really heavy technically and from a communication standpoint, and won't be self-funding for another several years, at least. So, basically, the only hope here is a pure PE play.

Who's going to finance this in the middle of a banking crisis? I think somebody trolling stock message boards managed to make a thin market tick up.

karlim

Nokia acquired and split for parts is a bargain at today's price. And it has been a bargain for about a year now, even at twice the price.

The hostile takeover was the biggest threat to Nokia's future for a while now. During the transition (which was way worse then anyone anticipated, including Tomi) and until we can see whether the bet the company on MIcrosoft Windows Phone strategy succeeds or not. Which will happen in Q4/Q1.

The question is why not a single hostile bid for Nokia materialized yet. While Nokia was so cheap and a boon for any acquirer. Or why didn't some big activist shareholder came along - like they did for Yahoo or Motorola way earlier then those companies got in such sorry state as Nokia is now.

My bet is - that it's because Nokia is a Finnish company with shares listed in Finland. And either the board has an option of "poison pill" to fend off any acquirer or Finnish government holds some "golden share" or something to do with Finnish laws that make the hostile takeover not an attractive option.

If Nokia were to be sold for parts in hostile takeover - it would have happened months ago. And as it didn't it won't happen this summer too.

And it is still all about whether Nokia can make WP(8) strategy work or not. Which we will see in Q4/Q4. (With a bit of Meltemi added to the mix)

And if WP strategy fails - well- Nokia will sell itself for parts voluntarily about this time next year. It'll be that or bankruptcy

MikaA

To Karlim

According to my understanding, there is no such clause in Finnish law. The Finnish pension funds are somewhat invested in Nokia, but majority of the shares are *not* held by Finns. Do not expect a Finnish government intervention, I don't believe that could happen. The only reason I can think of why hostile bids have not appeared is simply the deal between Nokia and Microsoft, it is not known what are the exact terms there. Q2/2012 results will probably spark a reaction, though.

Somebody posted a comment about organization cultures, being a Finn and having worked in Asia, this is indeed a major factor. Finns are not known for adjusting in the more hierarchical Asian system.

karlim

@MikaA

Nope. There may be no such clause, but there is such thing as Finnish law. And AFAIK Nokia is a Finnish company listed on Helsinki stock exchange and subject to Finnish law.

And all those NYSE/Nasdaq ADRs are just a proxy certificates for a company shares, subject to Finnish law. No matter who owns them

KPOM

Apple has never done a "big" acquisition, since it is too difficult to integrate the takeover into its corporate culture. It would be entirely a defensive play. My guess is that they would want Nokia's patent portfolio and Navteq only, and thus would do the deal either only as part of a consortium with other companies who don't threaten them (e.g. LG, HTC, Sony), or with a plan to then sell or scuttle all the rest. Or perhaps they would just make a bid to force someone else to overpay. If it turns out that Nokia's deal with Sisvel has made the patent portfolio all-but-worthless, Apple won't be interested.

Earendil Star

What are we talking about here?

Nokia being taken over?

Have I been dreaming all the time or did this already happen?

This is pure short term speculation to lure naive investors, and possibly to retard further downgrading, so as to kick the can down the road for a bit longer. Or to fend off the class actions against Nokia.

It has been clear for long that MS quietly and covertly took possession of Nokia through THT Elop.
It is leeching it and will continue to do so until it dies.

M's analysis is spot on, and mirrors what I have repeated again and again. In the notorious February 2011 addresses by THT Elop, it became clear that MS was getting all the interesting bits of Nokia (e.g. store, Navteq, carrier relations, mobile software -YES - SOFTWARE- know how, mobile hardware know how, patents, etc.) for free. Subsequently, details emerged of the various Mosaid (a Canadian company... like THT Elop... what a coincidence!) and Sisvel operations, where Nokia gives its patents to a third party, and MS profits from the deal while being given the right to use the technology. All this is an attempted and large-scale rescue of the

REAL BURNING PLATFORM: WP.

Think: given WP's poor performance, Nokia could have asked ANYTHING from MS. MS was desperate to support its doomed WP platform, already declining after less than one year and hitting a 1%ish market share at its peak (before Nokia). Yet, Nokia ended up paying MS in the process. How can this even be conceivable? Nokia made the riskiest bet they could have (choosing the smallest OS on the market, immature, the one nobody liked nor bought), considering no Plan B whatsoever (terrible risk management) instead of going any other path? Which would have given them more flexibility, abitlity to differentiate and autonomy? E.g.: staying with Symbian / Maemo or going Android or both? Like Sammy (I would dare say successfully) did?

Saying that Finnish law is scaring prospective buyers is the most ridiculous thing I've read in decades. MS and its contract with its-Nokia-self THT Elop is what potential buyers dread. And this is why they will never consider Nokia as a target. They will, however, take a bit of the spoils when MS and THT Elop make them available for sale.

Name

Did Microsoft do to Nokia more or less what it did to Sendo?

From http://en.wikipedia.org/wiki/Sendo: "Under the deal with Microsoft, "Microsoft would obtain an irrevocable, royalty free license to use Sendo's Z100 intellectual property, including rights to make, use, or copy the Sendo Smartphone to create other Smartphones and to, most importantly for Microsoft, sublicense those rights to third parties.""

If so then they surely wouldn't need to buy Nokia at all! They already have what they want.

AtTheBottomOfTheHilton

I'd say that Finnish state should go in and save Nokia and get rid of the American investors. Is this a bad thing? Well, this is exactly what USA has done with General Motors when they were bankrupt. The irony is that USA i a strong free market and globalization advocate but when it comes to domestic problems, socialistic solution are apparently allowed. Something that the US usually would rage about if any other country did the same. The reason the US did this is because blocking foreign investors.

The Finnish government should intervene because this is no free market situation to begin with.

karlim

Aaah. @earendil and good old conspiracy theories. Would have chuckled and ignored it if not for the last paragraph.

If you've been in business at least a bit you'd know that every contract can be broken/dissolved. Then there are courts do determine damages. And with good lawyers that potential bidder can certainly afford - they will be rather small. Especially if contract was signed in bad faith by Elop from Nokia's side. So your MSFT/NOK contract scaring potential bidders theory is ridiculous.

Nokia was cheap for what it is a year ago. It is even cheaper now. MSFT contract if broken - will cost 500 million they paid Nokia already and not much else. So why is nobody interested in Nokia for a year now if it's as great a company as you and others here claim?

Nokia is either a dud on the way to bankruptcy no matter what, or there's something in ownership structure that prevents a hostile bid

J.O. Aho

Have to say that Samsung hasn't copied everything they should of Nokia, looking at the developers phone Samsung Tizen, it's too much a copy of Android and lacks the feel as Maemo/MeeGo had.

I would think Samsung instead of bidding on Nokia (unless they want patent portfolio), they instead try to get as many of the developers Maemo/MeeGo who worked for Nokia and would be cheaper too.

Most likely I think would be some Venture Capital company who buys up Nokia, splits it up and sells the parts to highest bidders.

Louis

@karlim: "So your MSFT/NOK contract scaring potential bidders theory is ridiculous."

The exit cost of the MS agreement would just be one of many costs to look at for somebody who wanted to buy Nokia and pursue such a strategy. It might not be overwhelming by itself, but it couldn't help.

Similarly, we don't know what Apple's patent license looks like, and how much protection it has in case of a sale (probably a lot). Ditto for all the patents that got moved to various 3rd parties (trolls).

All of this requires a quantitative analysis. My personal guess is that even at the current market cap, in today's environment, the numbers will not come out well for a buyer.

"Nokia is either a dud on the way to bankruptcy no matter what, or there's something in ownership structure that prevents a hostile bid."

These aren't exclusive statements, since a complicated internal structure and lots of weird dependencies could be a business liability for operating the company and make selling parts difficult.

Tizzy

Nokians won't know what hit them if Samsung takes them over. I've worked for both companies -- the corporate culture in Nokia is so relaxed -- reasonable working hours, regular breaks -- Samsung, on the other hand, has a killer work environment. Long days, obedience to superiors -- what a shock to the system that would be.

KPOM

@AtTheBottomOfTheHilton, the GM bailout was very controversial here, but it was done during the middle of the financial crisis. It wasn't done to thwart foreign investors (indeed, the best parts of Chrysler were basically handed to Fiat with almost no risk and all reward), but rather to prop up a big union worker base in Detroit. I'd have preferred a traditional bankruptcy myself.

So Vatar

The Finnish government won't get involved and they should not.
Nokia has no value as ongoing concern, although some parts could be valuable to someone.
Nokia is on its way to liquidation if not bought out. There losses are unsustainable, they are bleeding cash, their strategy is laughable and their results prove it.

If there will be a buy out hinges solely on status and value of patents Nokis still has under their full control. If most is signed away as some web sites claim, then it is game over. Sure, there will be shareholder law suits, but there will be no money left to give back to shareholders after a few more months with the existing board and Elop on the steering wheel.

If there is still a valuable patent portfolio, then a bidding war may start. If and when is everyone's guess.

The problem all of us here have is that we do not know the status of Nokia's remaining IP. Some patents were signed away, yes, but was it the major and most relevant portion? We just don't know, and third tier websites like seeking alpha, fools, or forbes blogs are proven to have no clue.

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