Nokia Corporation
Stock Exchange Release
September 3, 2013 at 06.00 (CET +1)
Transaction expected to be significantly accretive to Nokia earnings.
Nokia continues to develop, and sees significant value in, advanced technologies, its patent portfolio and Nokia brand.
Nokia
focusing on NSN, HERE and Advanced Technologies post-transaction. Each
business a leading player in its respective segment.
Nokia outlines changes to leadership and Board of Directors.
ESPOO,
Finland - Nokia Corporation today announced that it has signed an
agreement to enter into a transaction whereby Nokia will sell
substantially all of its Devices & Services business and licence its
patents to Microsoft for EUR 5.44 billion in cash, payable at closing.
Nokia expects to book a gain on sale of approximately EUR 3.2 billion,
and expects the transaction to be significantly accretive to earnings.
The
transaction is expected to close in the first quarter of 2014, subject
to approval by Nokia shareholders, regulatory approvals and other
customary closing conditions.
Following the
transaction, Nokia plans to focus on its three established businesses,
each of which is a leader in enabling mobility in its respective market
segment: NSN, a leader in network infrastructure and services; HERE, a
leader in mapping and location services; and Advanced Technologies, a
leader in technology development and licensing. At closing, this
transaction is expected to strengthen Nokia's financial position and
provide a solid basis for future investment in these three businesses.
"After
a thorough assessment of how to maximize shareholder value, including
consideration of a variety of alternatives, we believe this transaction
is the best path forward for Nokia and its shareholders," said Risto
Siilasmaa, Chairman of the Nokia Board of Directors and, following
today's announcement, also Nokia interim CEO.
Deal Terms
Subject
to the closing of the transaction, Microsoft will acquire substantially
all of Nokia's Devices & Services business, including the Mobile
Phones and Smart Devices business units as well as an industry-leading
design team, operations including all Nokia Devices & Services
production facilities, Devices & Services-related sales and
marketing activities, and related support functions. At closing,
approximately 32,000 people are expected to transfer to Microsoft,
including approximately 4,700 people in Finland. Nokia's CTO (Chief
Technology Office) organization and patent portfolio will remain within
the Nokia Group. The operations that are planned to be transferred to
Microsoft generated an estimated EUR 14.9 billion, or almost 50%, of
Nokia's net sales for the full year 2012.
As part
of the transaction, Nokia will grant Microsoft a 10 year non-exclusive
license to its patents as of the time of the closing, and Microsoft will
grant Nokia reciprocal rights related to HERE services. In addition,
Nokia will grant Microsoft an option to extend this mutual patent
agreement to perpetuity. Of the total purchase price of EUR 5.44
billion, EUR 3.79 billion relates to the purchase of substantially all
of the Devices & Services business, and EUR 1.65 billion relates to
the mutual patent agreement and future option.
Additionally,
Microsoft will become a strategic licensee of the HERE platform, and
will separately pay Nokia for a four year license. This revenue stream
is expected to substantially replace the revenue stream HERE is
currently receiving from Nokia's Devices & Services business
internally. If the transaction closes Microsoft is expected to become
one of the top three customers of HERE.
Microsoft
has agreed to make immediately available to Nokia EUR 1.5 billion of
financing in the form of three EUR 500 million tranches of convertible
bonds to be issued by Nokia maturing in 5, 6 and 7 years respectively.
It is at Nokia's discretion if it chooses to draw down all or some of
these tranches. The financing is not conditional on the transaction
closing. If the transaction closes, any outstanding bonds will be
redeemed and netted against the deal proceeds by the amount of principal
and accrued interest.
The following are the key terms of the three tranches of bonds Nokia may choose to issue:
The
first tranche matures in 5 years and has a 1.125% per annum coupon
payable semi-annually with an initial conversion price of EUR 3.9338.
The
second tranche matures in 6 years and has a 2.5% per annum coupon
payable semi-annually with an initial conversion price of EUR 4.0851.
The
third tranche matures in 7 years and has a 3.625% per annum coupon
payable semi-annually with an initial conversion price of EUR 4.2364.
The
Board of Directors of Nokia will separately assess whether to draw down
some or all of this financing. If Nokia would decide to utilize this
financing option, the earliest that Microsoft could convert any of these
bonds to shares is two years from draw down.
Microsoft
has agreed to a 10 year license arrangement with Nokia to use the Nokia
brand on current Mobile Phones products. Nokia will continue to own and
maintain the Nokia brand. Under the terms of the transaction,
Microsoft has agreed to a 10 year license arrangement with Nokia to use
the Nokia brand on current and subsequently developed products based on
the Series 30 and Series 40 operating systems. Upon the closing of the
transaction, Nokia would be restricted from licensing the Nokia brand
for use in connection with mobile device sales for 30 months and from
using the Nokia brand on Nokia's own mobile devices until December 31,
2015.
The transaction is subject to potential
purchase price adjustments, protecting both Nokia and Microsoft, and a
USD 750 million termination fee payable by Microsoft to Nokia in the
event that the transaction fails to receive necessary regulatory
clearances.
Building Nokia's next chapter
Following
the transaction, Nokia plans to focus on its three established
businesses, each of which is a leader in enabling mobility in its
respective market segment: NSN, a leader in network infrastructure and
services; HERE, a leader in mapping and location services; and Advanced
Technologies, a leader in technology development and licensing.
Nokia
will retain its headquarters in Finland. Excluding the approximately
32,000 people planned to transfer to Microsoft, Nokia would have
employed approximately 56,000 people at the end of the second quarter
2013.
"Today is an important moment of change and
reinvention for Nokia and its employees," said Nokia Chairman and
interim CEO Mr. Siilasmaa. "With our strong corporate identity, leading
assets and talent, and from a position of renewed financial strength, we
will build Nokia's next chapter."
NSN, a
wholly-owned business of Nokia since August 2013, is a leader in mobile
broadband, and is focused on operating at the forefront of each
generation of mobile technology, including pushing the boundaries of
connecting people through LTE and future technologies. Nokia continues
to manage NSN as a strong, independent entity.
HERE
will continue to focus on growing its industry-leading position through
a broad location offering across mobile devices, connected devices,
enterprise solutions and the automotive environment. HERE will continue
to execute its strategy to become the leading independent location cloud
platform company, offering mapping and location services across
different screens and operating systems.
Our
Advanced Technologies business will build on several of Nokia's current
CTO and Intellectual Property Rights activities.Advanced Technologies
will explore new business opportunities through advanced research,
development and concept products in areas such as connectivity, sensing
and material technologies, as well as web and cloud technologies. At the
same time, Advanced Technologies plans to continue to build Nokia's
patent portfolio from this innovation and targets to expand its
industry-leading technology licensing program, spanning technologies
that enable mobility today and tomorrow.
"Following
this transaction, Nokia's financial situation is expected to be
significantly stronger and its earnings profile significantly improved,"
said Nokia CFO and interim President Timo Ihamuotila. "We will have
three well-positioned businesses, each a leader in its market. Overall,
we will continue to focus on managing and maximizing the assets of Nokia
Group prudently and pragmatically to create value for Nokia
shareholders."
Historical pro forma information and strategic evaluation
This
transaction is expected to be significantly accretive to Nokia
earnings. In the first half 2013, Nokia Group net sales were EUR 11.5
billion and non-IFRS operating margin was 4.2%. On a pro forma basis
assuming this transaction would have closed, Nokia Group net sales would
have been EUR 6.3 billion and non-IFRS operating margin would have been
12.1% in the first half 2013.
| PREVIOUSLY PUBLISHED AND PRO FORMA INFORMATION |
| | Nokia
GROUP
as previously published | Continuing Operations
pro forma | Nokia
GROUP
as previously published | Continuing
Operations
pro forma |
| | Non-IFRS | Reported | Non-IFRS | Reported | Non-IFRS | Reported | Non-IFRS | Reported |
| | 1-6 2013 | 1-6 2013 | 1-6 2013 | 1-6 2013 | 1-12 2012 | 1-12 2012 | 1-12 2012 | 1-12 2012 |
Net sales
(EUR billions) | 11.5 | 11.5 | 6.3 | 6.2 | 30.3 | 30.3 | 15.3 | 15.3 |
| Operating profit (%) | 4.2 | -2.3 | 12.1 | 0.8 | 0.4 | -7.6 | 8.5 | -4.0 |
1)
The pro forma net sales for continuing operations have been calculated
by deducting the Mobile Phones and Smart Devices business units net
sales and spare parts net sales from the Nokia Group net sales.
2)
Additionally, continuing operations pro forma net sales have been
adjusted to reflect the HERE platform license agreement under which
Microsoft will separately pay Nokia, as if the transaction had closed on
January 1, 2012.
3) The pro
forma operating profit % has been calculated by deducting the Mobile
Phones and Smart Devices business units costs from the Nokia group costs
as well as by making certain cost adjustments between the transferring
business and continuing operations to reflect the scope of the
transaction.
4) The above
figures reflect the retrospective application of IAS 19R, Employee
benefits, as published in our 2013 interim reports.
The
transaction is also expected to significantly strengthen Nokia's
financial position and Nokia targets to return to being an investment
grade company. If this transaction as well as Nokia's acquisition of 50%
of NSN would have closed before the end of the second quarter 2013,
Nokia would have ended the quarter with gross cash of EUR 14.9 billion
and net cash of EUR 7.8 billion, excluding transaction related expenses
and taxes. Assuming repayment of financing facilities related to the NSN
acquisition as well as Nokia's debt facilities of EUR 1.8 billion
maturing before the end of the first quarter 2014, Nokia would have
ended the second quarter 2013 with gross cash of EUR 11.4 billion and
net cash of EUR 7.8 billion, excluding transaction related expenses and
taxes. This compares to reported gross cash of EUR 9.5 billion and net
cash of EUR 4.1 billion at the end of the second quarter 2013.
Nokia's
Board of Directors is conducting a strategy evaluation for Nokia Group
between signing and closing of the transaction. This evaluation will
comprise of evaluations of strategies for each of Nokia's three
businesses and possible synergies between them, as well as an evaluation
of the optimal corporate and capital structure for Nokia after the
closing of the transaction. After this evaluation is complete, deemed
excess capital is planned to be distributed to shareholders.
Nokia
expects to book a gain on sale of approximately EUR 3.2 billion from
the transaction, excluding any potential tax implications, gains or
losses related to currency translation differences triggered by the
transaction. In connection with the transaction, Nokia will be required
to evaluate whether the impact of the sale on future cash flows or
operating results requires changes in the carrying values of any of its
remaining assets or liabilities. This evaluation will include, among
other things, a review of existing goodwill balances for impairment and
the potential recoverability of deferred tax assets currently subject to
valuation allowance. Additional assets and liabilities may require
adjustment upon completion of our review.
Nokia Leadership
Nokia
today announced changes to its leadership as a result of the proposed
transaction. These changes, which are effective immediately, are
designed to provide an appropriate corporate governance structure during
the interim period following the announcement of this transaction.
The
Nokia Leadership Team will continue to consist of the current members,
but with changes in positions and reporting lines as outlined below.
Risto
Siilasmaa will assume an interim CEO role for Nokia while continuing to
serve in his role as Chairman of the Nokia Board of Directors. As part
of his interim CEO role, Mr. Siilasmaa will, among other tasks, oversee
strategy and have four direct reports: Michael Halbherr, Executive Vice
President, HERE; Stephen Elop, Executive Vice President, Devices &
Services; Timo Ihamuotila, Nokia CFO and interim President; and Jesper
Ovesen, Executive Chairman of the NSN Board of Directors.
To
avoid the perception of any potential conflict of interest between now
and the pending closure of the transaction, Stephen Elop will step aside
as President and CEO of Nokia Corporation, resign from the Board of
Directors, and will become Executive Vice President, Devices &
Services. The following Nokia Leadership Team members will report to Mr.
Elop: Marko Ahtisaari, Executive Vice President, Design; Jo Harlow,
Executive Vice President, Smart Devices; Juha Putkiranta, Executive Vice
President, Operations; Timo Toikkanen, Executive Vice President, Mobile
Phones; and Chris Weber, Executive Vice President, Sales and Marketing.
Timo
Ihamuotila becomes President of Nokia for the interim period while also
continuing to serve as CFO. Mr. Ihamuotila will assume the
responsibility of chairing the Nokia Leadership Team. The following
Nokia Leadership Team members will report to Mr. Ihamuotila: Louise
Pentland, Executive Vice President and Chief Legal Officer; Henry Tirri,
Executive Vice President and Chief Technology Officer; Juha Äkräs,
Executive Vice President, Human Resources; and Kai Öistämö, Executive
Vice President, Corporate Development.
We
expect that Mr. Elop, Ms. Harlow, Mr. Putkiranta, Mr. Toikkanen, and
Mr. Weber would transfer to Microsoft at the anticipated closing.
Mr.
Ahtisaari has decided to again pursue entrepreneurial opportunities. He
will step down from the Nokia Leadership Team and his position as
Executive Vice President, Design, effective as from November 1, 2013. He
will continue to work on activities related to the transaction through
November 30, 2013. Effective November 1, 2013 Stefan Pannenbecker will
start leading Design, reporting to Mr. Elop.
This
announcement does not change the current leadership for Nokia Solutions
and Networks. Rajeev Suri will continue to serve as CEO, NSN, reporting
to NSN's Board which continues to be chaired by Jesper Ovesen who
continues to serve as NSN's Executive Chairman and reports to Mr.
Siilasmaa.
Nokia Board of Directors
To
avoid the perception of any potential conflict of interest between now
and the pending closure of the transaction, Stephen Elop will resign
from the Nokia Board of Directors effective today. The Nokia Board
currently consists of the following nine members: Risto Siilasmaa,
Chairman; Jouko Karvinen, Vice Chairman; Bruce Brown; Elizabeth Doherty;
Henning Kagermann; Helge Lund; Mårten Mickos; Elizabeth Nelson and Kari
Stadigh. As a result of Mr. Siilasmaa assuming the interim CEO role,
and in line with good corporate governance, Mr. Siilasmaa will no longer
be a member and Chairman of the Corporate Governance & Nomination
Committee. The Corporate Governance and Nomination Committee currently
consists of the following three members: Mr. Kagermann, Mr. Karvinen
and Mr. Lund. The Board elected Mr. Karvinen as the Chairman of the
Corporate Governance & Nomination Committee. The composition of the
Personnel Committee and the Audit Committee remain unchanged.
Extraordinary shareholders meeting and Nokia Board recommendation
Under
the terms of the agreement, the closing of the transaction will be
subject to approval by Nokia shareholders. Nokia plans to hold an
Extraordinary General Meeting on November 19, 2013 and to publish a
notice of the meeting and make available more information on the
transaction and its background later this month. Having thoroughly
analysed the transaction and other alternatives available, the Board of
Directors decided to enter into the transaction and recommends that
Nokia shareholders vote to confirm and approve the sale of substantially
all of the Devices & Services business to Microsoft at the
Extraordinary General Meeting.
Investor Conference Call
Today,
Nokia executives will hold an investor call at 3.00pm Finnish time. A
live webcast of the conference call will be available at
http://investors.nokia.com. Media representatives can view the webcast or listen in at +1 706 634 5012, conference ID 45390451.
Press Conference
Nokia
will host a press conference today on Tuesday at 11.00 a.m. EET in
Dipoli, Espoo (Otakaari 24). Registration will start at 10 a.m., and the
doors will open at 10.40 a.m. Due to space constraints, only media who
show valid press credentials at the registration will be admitted. Media
are encouraged to watch a live webcast of the press conference via:
http://press.nokia.com.
Media Enquiries
Nokia
Communications
FORWARD-LOOKING STATEMENTS
It
should be noted that Nokia and its business are exposed to various
risks and uncertainties and certain statements herein that are not
historical facts are forward-looking statements, including, without
limitation, those regarding: A) the planned sale by Nokia of
substantially all of Nokia's Devices & Services business, including
Smart Devices and Mobile Phones (referred to below as "Sale of the
D&S Business") pursuant to a purchase agreement between Nokia and
Microsoft (referred to below as "Agreement"); B) the closing of the Sale
of the D&S Business; C) obtaining the shareholder approval for the
Sale of the D&S Business; D) receiving timely, or at all, necessary
regulatory approvals for the Sale of the D&S Business; E)
expectations, plans or benefits related to or caused by the Sale of the
D&S Business; F) expectations, plans or benefits related to Nokia's
strategies, including plans for Nokia with respect to its continuing
business areas that will not be divested in connection with the Sale of
the D&S Business; G) expectations, plans or benefits related to
changes in leadership and operational structure; H) expectations and
targets regarding our operational priorities, financial performance or
position, results of operations and use of proceeds from the Sale of the
D&S Business; and I) statements preceded by "believe," "expect,"
"anticipate," "foresee," "sees," "target," "estimate," "designed,"
"aim", "plans," "intends," "focus," "will" or similar expressions. These
statements are based on management's best assumptions and beliefs in
light of the information currently available to it. Because they involve
risks and uncertainties, actual results may differ materially from the
results that we currently expect. Factors, including risks and
uncertainties that could cause these differences include, but are not
limited to: 1) the inability to close the Sale of the D&S Business
in a timely manner, or at all, for instance due to the inability or
delays in obtaining the shareholder approval or necessary regulatory
approvals for the Sale of the D&S Business, or the occurrence of any
event, change or other circumstance that could give rise to the
termination of the Agreement; 2) the potential adverse effect on the
sales of our mobile devices, business relationships, operating results
and business generally resulting from the announcement of the Sale of
the D&S Business or from the terms that we have agreed for the Sale
of the D&S Business; 3) any negative effect caused by us entering
into the Sale of the D&S Business, as we may forego other
competitive alternatives for strategies or partnerships that would
benefit our Devices & Services business and if the Sale of the
D&S Business is not closed, we may have limited options to continue
the Devices & Services business or enter into another transaction
on terms favorable to us, or at all; 4) our ability to effectively and
smoothly implement planned changes to our leadership and operational
structure or maintain an efficient interim governance structure and
preserve or hire key personnel; 5) any negative effect from the
implementation of the Sale of the D&S Business, which will require
significant time, attention and resources of our senior management and
others within the company potentially diverting their attention from
other aspects of our business; 6) disruption and dissatisfaction among
employees caused by the plans and implementation of the Sale of the
D&S Business reducing focus and productivity in areas of our
business; 7) the amount of the costs, fees, expenses and charges related
to or triggered by the Sale of the D&S Business; 8) any impairments
or charges to carrying values of assets or liabilities related to or
triggered by the Sale of the D&S Business; 9) potential adverse
effect on our business, properties or operations caused by us
implementing the Sale of the D&S Business; 10) the initiation or
outcome of any legal proceedings, regulatory proceedings or enforcement
matters that may be instituted against us relating to the Sale of the
D&S Business; and, as well as the risk factors specified on pages
12-47 of Nokia's annual report on Form 20-F for the year ended December
31, 2012 under Item 3D. "Risk Factors." and risks outlined in our most
recent interim report. Other unknown or unpredictable factors or
underlying assumptions subsequently proving to be incorrect could cause
actual results to differ materially from those in the forward-looking
statements. Nokia does not undertake any obligation to publicly update
or revise forward-looking statements, whether as a result of new
information, future events or otherwise, except to the extent legally
required.
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