Nokia buys Siemens stake in equipment venture for $2.2 billion3 min read . Updated: 01 Jul 2013, 11:14 AM IST
Nokia will pay €1.2 billion for Siemens’s 50% holding in Nokia Siemens Networks
Nokia will pay €1.2 billion for Siemens’s 50% holding in Nokia Siemens Networks, with the remainder being paid in a secured loan due a year after the deal’s completion, the companies said in a joint statement on Monday. Nokia Siemens will keep its headquarters in Espoo, Finland, and Rajeev Suri will continue to lead the equipment maker.
For Nokia, which is seeking to gain traction in a comeback in the smartphone industry, the transaction gives the company full control of a business whose earnings have been improving since returning to profit last year. Siemens has been seeking to exit the wireless-gear business for several years to focus on energy equipment, healthcare and rail. Bloomberg News first reported the accord late on Sunday.
“We see this as a positive and negative for Nokia," said Pierre Ferragu, an analyst at Sanford C. Bernstein in London. Such a transaction gives a more tangible long-term future for the group, but a tighter balance sheet for hardship to come.
“Siemens, which manufactures products from power turbines to high-speed trains, renewed efforts to sell its stake earlier this year, holding talks with buyout firms about a potential transaction," according to two people familiar with the talks.
“Unprofitable until early last year, Nokia Siemens’s earnings have improved thanks to cost cuts. The venture is on track to exceed its target of saving 1 billion euros in operating expenses by the end of this year," chief executive officer Suri said in February.
Nokia, based in Espoo, and Siemens, based in Munich, expect to complete the deal in the third quarter.
Nokia and Siemens abandoned talks with private-equity buyers in 2011 over a sale of the business as the firms failed to come up with a compelling offer. Nokia Siemens then started a programme in late 2011 to cut 17,000 jobs, or about 23% of the total. Competition from Asian rivals Huawei Technologies Co. and ZTE Corp. prompted Nokia Siemens and its western rivals such as Ericsson AB and Alcatel-Lucent SA to eliminate jobs. Nortel Networks Corp. went bankrupt in 2009.
Nokia reported in April its smallest quarterly revenue in 13 years as handset demand waned. Its first-quarter sales fell 20% as competition from Asian manufacturers building phones that run Google Inc.’s Android software hurt demand for Nokia’s basic handsets.
Nokia said today it had net cash of €3.7 billion to €4.2 billion at the end of June, down from €4.5 billion at the end of March. Nokia’s debt is at junk status with the three main rating companies. In January, Nokia scrapped its dividend for the first time in at least 143 years to bolster liquidity.
The deal may help Siemens CEO Peter Loescher, who this year announced the fourth profit forecast cut in his six-year tenure, to reach a target for matching profitability at General Electric Co. and ABB Ltd.
“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," Siemens chief financial officer Joe Kaeser said in Monday’s statement.
Loescher, an Austrian national who joined Siemens in 2007 from drugmaker Merck and Co. as the first CEO hired from outside the company, started a savings programme last year after acknowledging he had been slow to react to the economic downturn. The CEO is also under pressure after some deals that he supervised soured and a push into environmentally friendly energy led to spiralling costs.
Europe’s largest engineering company this year announced the closure of its loss-making solar unit, and is also selling water technologies, parcel automation, airport logistics and air freight units, while its Osram Licht AG lighting unit will be spun off.