Microsoft stands to make over €100m if Nokia shareholders reject sale

Microsoft is in line for substantial payouts if its acquisition of Nokia's devices and services business doesn't come off. But if the deal fails and it's not Nokia's fault, it'll be landed with a €750m bill.
Written by Jo Best, Contributor

Microsoft will receive millions of dollars if its €5.4bn acquisition of Nokia's devices and services business doesn't go ahead.

Nokia is holding an extraordinary general material next month where shareholders will be asked to vote on the proposed sale of a substantial chunk of its business to Microsoft, which was announced earlier this month.

According to material published by Nokia last week (PDF) ahead of the vote, should shareholders not approve the sale, the company will "continue to conduct our business in the ordinary course and evaluate all available go-forward strategic alternatives". It will also be forced to pay Microsoft a damages fee of €37.9m, it said.

If the acquisition doesn't happen, and another would-be buyer purchases more than 20 percent of the company within a year after Microsoft's bid has been rejected, Nokia will have to pay Microsoft €113.7m, less the €37.9m fee if Nokia has already paid it.

While, under the terms of the deal, Nokia can't actively go out and seek a better offer for 20 percent of more of its business before the Microsoft acquisition is approved or rejected, it's still free to consider any rivals bids that are put in front of it. If another company offers what the Nokia board considers a better proposal for 75 percent or more of the company, it can suggest shareholders accept the other offer, but only after giving Microsoft a chance to match the upped bid first.

If the board recommends a rival offer "in a manner adverse to Microsoft International" or fails to recommend against a competing proposal, Microsoft could withdraw its bid, and Nokia would have to hand over the €113.7m.

If the deal doesn't happen, Microsoft will also not agree to license Here — Nokia's mapping and navigation software business — and will not go through with a proposed 10-year patent licensing agreement worth €1.65bn, agreed alongside the devices and services unit sale.

However, the cost of the deal not coming off will not rest entirely on Nokia: if Nokia fulfils all the necessary criteria for the deal to go through (bar gaining regulatory approval) but the acquisition isn't completed by 3 September 2014, Microsoft will have to pay Nokia €750m.

All signs are that the deal will go through, however: the Nokia board is recommending Microsoft's offer, and if all goes smoothly, it expects the deal will close in the first quarter of next year.

Strategic alternatives

The company has also shed light on the alternatives it considered before shaking hands with Microsoft on the sale of its devices and services business, which it said included "changing the platform for Nokia's smartphones, selling some or all of the D&S [devices and services] Business to other potential acquirers and amending the agreement governing Nokia and Microsoft's partnership".

Among the other platforms that Nokia doubtless considered was Android: news surfaced last week that Nokia engineers had created an Android-powered Lumia smartphone well in advance of beginning its negotiations with Microsoft.

It also considered the sale of Here, according to the material published last week, and Nokia discussed with Microsoft the possibility of it buying the mapping unit along with the devices and services business. After the sale, Microsoft will become one of the top three biggest licensees of Here.

Assuming the sale does go through, what remains of Nokia — Here, NSN and Advanced Technologies – will be €3bn better off.  What the company will do with that money is as yet unknown — Nokia hasn't made any decisions, it said, but may use it to repay debt, invest in the remaining businesses, or return some to shareholders.

More on Nokia and Microsoft

Editorial standards