Nokia’s Stock Soars on Microsoft Deal

The stock price of Nokia Corporation (NYSE:NOK) skyrocketed after the company sealed an agreement with Microsoft Corporation (NASDAQ:MSFT) to sell its Devices and Services business including its Lumia & Asha phone brands, a portfolio of patents and license for mapping services and related production facilities. The acquisition price is €5.44 billion or $7.2 billion.

After the market close in New York on Tuesday, Nokia’s stock reached as much as $5.12 per share, an increase of more than 31%.

According to Microsoft, the acquisition of Nokia’s Devices and Services business is a major move for the software giant in transforming itself in developing operating system and applications for desktop, laptop and smartphone, tablet, and other mobile devices.

Microsoft’s $7.2 billion acquisition price include a $5 billion payment for the smart devices unit of Nokia that manufactures the Lumia smartphones powered by the Windows Phone operating system, and $2.2 billion payment for the rights to use the Finnish smatphone manufacturers patents and license to use its mapping service. The agreement provided an option for the software giant to extend the use of Nokia’s patents indefinitely.

Steve Ballmer, chief executive officer of Microsoft Corporation said, “It’s a bold step into the future — a win-win for employees, shareholders and consumers of both companies.”

In 2011, Nokia and Microsoft entered a partnership in an effort to strengthen its competitiveness and increase its market share in the smartphone and tablet, which are dominated by Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG) and Samsung Electronics (LON;BC94) (KSE:005930). Nokia developed its Lumia smartphones powered by Microsoft’s Windows Phone operating system.

During the second quarter of the current fiscal year, Nokia sold 7.4 million Lumia smartphones, which is significantly lower than the 31million iPhone units sold by Apple and 187 million Android smartphones. Despite the large volume gap compared with its competitors, Ballmer was encouraged with the sales performance of the Lumia phones given the fact that its growth rate in a year is 78%.

Ballmer said, “Now is the time to build on this momentum and accelerate it further.Finland will become the hub and center for our phone R&D and we are counting very much on the incredible talent of Nokia employees to be a key part of driving and propelling Microsoft forward.”

Nokia’s CEO, Stephen Elop stepped down from his position to serve as executive vice president of Microsoft’s Devices & Services unit. Speculations arise that Elop might be a strong candidate to succeed Ballmer who is set to retire over the next 12 months.