On the news that Microsoft will purchase substantial assets from Nokia, including its handset business and intellectual property, company investors have discarded its stock, sending it down 6 percent in regular trading.
At current trade, that decline represents $16.6 billion in market capitalization, a stunning repudiation of the plan by investors. To put the decline in perspective, when current CEO Steve Ballmer announced that he will relinquish his role at Microsoft, the company picked up $18 billion in value.
Therefore, investors are, wittingly or not, stating that the exit of Ballmer is roughly as good as the purchase of Nokia is bad. Not Microsoft’s best day.
Why the Nokia purchase? Essentially, Nokia became the de facto Windows Phone OEM, building almost 90 percent of handsets that the line shipped. Given that level of dominance, and the fact that Microsoft had granted it special leniency to enact user interface changes, Nokia was too free to change the face of Microsoft’s mobile platform.
So $7.2 billion later, Microsoft has control of its mobile platform and it has control over its mobile destiny. Why then would investors mock the deal?
Keep in mind that the purchase is functionally free for Microsoft. It can deploy foreign cash that it could not otherwise use to snag the firm, implying a firm savings over using domestic monies. That said, Nokia loses money, and it is likely that the Nokia assets that Microsoft purchased will also bleed cash.
However, I don’t think that a mild financial hangover is the ticket here. Instead, I think that Microsoft investors are betting against Nokia’s now ex-CEO Stephen Elop becoming Microsoft’s CEO. Call it pre-repudiation.
Top Image Credit: D.Begley