Nokia Corp. (NYSE:NOK) will buy out partner Siemens AG's (NYSE:SI) entire 50 percent stake in Nokia Siemens Networks, or NSN, paying 1.7 billion euros ($2.2 billion), as the former mobile phone leader struggles to regain its place in an increasingly crowded and competitive market.
The deal will allow the loss-making Finnish corporation to gain full control of NSN, which returned to profitability last year, after undertaking a series a cost-cutting measures, Bloomberg reported, including slashing 17,000 jobs, which accounted for almost a quarter of its global workforce, in November 2011.
“With this transaction, Nokia buys itself a future, whatever happens in smartphones and feature phones,” Pierre Ferragu, an analyst at Sanford C. Bernstein in London, told Bloomberg. “Nokia Siemens has a future in the network equipment world, with a streamlined operation and a No. 2 position in a now concentrated and stable market.”
Nokia is taking over NSN when the joint venture's focus on fourth-generation Long Term Evolution, or LTE, networks has begun to pay off, according to Reuters, translating into 196 million euros in adjusted earnings before interest and taxes, in the first quarter of 2013.
Hannu Rauhala, a Helsinki-based analyst at Pohjola Bank told Bloomberg that NSN has a valuation of at least 5 billion euros higher than the 3.4 billion-euro valuation indicated by the buyout, adding that the transaction makes a takeover bid for Nokia less likely.
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“With its clear strategic focus and strong leadership team, Nokia Siemens Networks has structurally improved its operational and financial performance,” Stephen Elop, President and CEO of Nokia, said in a statement. “Furthermore, Nokia Siemens Networks has established a clear leadership position in LTE, which provides an attractive growth opportunity.”
NSN, which faced stiff competition from Chinese telecom equipment manufacturers such as Huawei Technologies Co. and ZTE Corp., has been able to turn around its fortunes, since being hit by a slowdown in demand following the global financial crisis of 2008.
"We continue our efforts to strengthen our focus on Siemens' Core areas of Energy management, Industry and Infrastructure as well as Healthcare," Joe Kaeser, Siemens CFO, said, in a company release.
Nokia will pay 1.2 billion euros in cash at the closing of the transaction, and the balance of 0.5 billion euros will be paid in the form of a secured loan from Siemens, due one year from closing, the statement said.