Microsoft’s $100 billion Nokia acquisition: Absolutely unbelievable!

Steve Ballmer of Microsoft got up on stage at 7am this morning in London to announce that they intend acquiring Nokia for $100 billion in a mixture of cash and equity — a substantial premium over the company’s $58.2 billion market cap. The markets are going nuts, as one might expect, with Nokia shares topping $20 each, sending their current valuation to well over $74 billion already. Ballmer and the team at Microsoft presumably expected this rally based on their tabled offer. Of course, it’s important to point out that this is just the opening gambit and that although Ballmer claimed that institutional investors (who account for a large portion of Nokia stock) are in favour of the deal, there is no guarantee that they’ll be able to reach agreement for the whole company.

But there’s a sweetener: Microsoft is offering Nokia shareholders 2 shares for every Nokia share — a smart move seeing as Microsoft’s market capitalization closed yesterday well north of $250 billion.

Now then. What does this impending transaction mean for the marketplace?

Shocking. Absolutely shocking. Whilst there’s long been rumours that someone might snap up Palm, the fact that Microsoft has made a bid for Nokia changes things dramatically. There’s been no secret that Microsoft — once dominant — has really screwed up their mobile division time and time again. But they’ve got the cash pile, the patience and the market clout to keep at it.

Analysts reckon that whilst Microsoft’s new Windows Phone has a pretty good chance of success in the North American markets, the reality is that India, China and the other major developing economies are completely cold to Microsoft. And guess who’s storming ahead in those sectors? Nokia. 1.2 million handsets a day fly out the Nokia factories, many of them low-end handsets aimed at the developing countries.

Why would Microsoft want in there? Let’s put this in perspective. In December 2009, India added 19.2 million NEW mobile customers. That’s like adding the equivalent of o2 UK every month. Just in India! Every single one of those customers needs a handset (not necessarily a new one, by the way) and every single one of them is going to want to start using basic mobile services — something Nokia has been investing in heavily with it’s Ovi Suite. Did you know, for example, that Nokia Messaging is now in use across 70 countries? So if I buy a new reasonably priced Nokia handset, guess what, I get email, instant messaging, Maps, sharing, the whole shebang, all included. Microsoft wants in there.

And goodness me they’ve got the cash to make it work.

There’ll be a bit of a culture shock though. Ballmer explained that he reckons that if the acquisition was to go ahead, they’d run Nokia as a separate unit for at least 2 years whilst the work out how precisely to integrate the companies.

A sensible move.

Anyway, let’s see how things go.

An exciting morning!

(My Original Blog Post:


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