So far every analysis I have read on Nokia's acqusition by Micorsoft, almost all have commented it from Microsoft's point of view. A few like it and many don't. But one thing consistent in all these views is the lack of Nokia's perspective to getting acquired.
We all know Nokia has struggled mightly in the recent past, their feature phone and smartphone business taking a dive and only recently seeing some buzz around Lumia line of Windows Phone Samrtphones. The devices and services division of Nokia is a loss making one.
In the second quarter of this year, Nokia's Devices and Services division's operating loss was €33M. The margin in Devices and Services was -1.2% (up from from -11.8% in Q2 2012). Total Lumia smartphone device sales were 7.4M (up from 6.1M in Q1), while mobile phone volumes were 53.7M (down from 55.8M in Q1 and down 27% y-on-y). We did see some strong performance from Nokia Solutions and Networks (erstwhile Nokia Siemens) which prompted Nokia to buy Siemens share this quarter. HERE also did well in Q2 achieving Q2 operating margin of 3.4% exceeding analysts expectation. This along with the fact Nokia's cash position has been declining made perfect sense to go with this deal.
Bernstein recently reiterating an underperform rating for Nokia asserted that company’s balance sheet, excluding the portion tied to the Nokia-Siemens Networks joint venture that sells telecom equipment, is “in a rather tight net cash position".
From a recent market cap of €10.7bn, we believe investors should take between a positive €0.5bn and a negative €1.8bn of “real” net cash, into account, then €3bn for Nokia’s share in NSN and €2.2bn for Nokia’s IP portfolio. This leaves us with €5bn to €7.3bn for the handset business excluding IP revenues. This is 0.4x to 0.6x times sales for a business in great difficulties, with revenues on a 30% p.a. decline trend, a P&L in deep losses, exposed to a disappearing Feature Phone market and struggling to make a dent in an ultra competitive Smartphone market. It appears to us largely too expensive. As a comparison point, when Google acquired Motorola Mobility, a Sum-of-the-Part analysis shows the handset business without patents was valued a negative $850m (~ negative €650m). For Nokia, taking no net cash into account, our price target would imply a €400m value for handsets alone.
This is a primary reason you see an unconditional loan from Microsoft to Nokia for €1.5B regardless if deal closes or not.
So from Nokia's perspective it was very clear, give away its loss making units at a very comfortable price and till the deal closes get some cash infusion to get the oeprations going. And once everything settles down, focus on it's Telecom business and HERE services which are profitable and making good strides in the recent times.
If you are a Nokia stockholder, I would say, go long.