The deal hasn’t closed yet, but investors are already approving or penalizing Microsoft’s acquisition of Nokia devices, depending on the company. Microsoft shares opened down 5.2 percent to $31.75. In the meantime, earlier today, Nokia shares (HEL:NOK1V) opened at €4.36. Compared to yesterday’s closing price of €2.96, it represents a whopping 47 percent increase. Now trading at €4.14, the stock price remains strong.
Why do Nokia investors appreciate the deal so much? As Nokia frames it, the company got rid of its failing business while keeping all the good parts — the NSN telecom infrastructure division, the HERE map division and patents. Moreover, Microsoft will give $7.1 billion in cash to handle a money-losing division, license patents and the Nokia brand.
When it comes to day-to-day changes, Microsoft will increase its payroll by 32,000 employees while Nokia will shrink to 24,000 employees. Today’s announcement represents a great way for Nokia to easily cut costs.
Since 2007, Nokia shares have been down 82 percent. Investors clearly wanted to see a major change — Windows Phones and Stephen Elop weren’t enough to turn the company around. While radical, selling the handset division greatly changes Nokia’s outlook and its competitive landscape.
Investors are still optimistic that the 150-year old company will be able to find new industries and successfully reinvent itself — it achieved this feat multiple times already.
For Microsoft, it’s another story. While the company still has plenty of cash, it just spent $7.1 billion to make a risky bet. The only comparable deal was the Motorola acquisition by Google. Even though Google was very interested by Motorola’s patents, it inherited tens of thousands of employees and a difficult smartphone division. It hurt the bottom line for multiple quarters. Microsoft will face the same challenges.
It remains to be seen whether Microsoft will be able to control costs and increase Lumia’s market share in the coming years. For now, investors have decided that Nokia is the clear winner of this deal.