On September 2, 2013 Microsoft announced that it will be acquiring the Devices & Services business of Nokia for $7.2 billion. The deal, which stands as one of Microsoft’s largest to date, comes in the wake of two other big announcements from the software giant: CEO Steve Ballmer will be retiring as CEO within a year, and one of the company’s largest shareholders, ValueAct Capital, will be granted a seat on Microsoft’s board.
Both Microsoft and Nokia have had difficulty competing in the rapidly evolving mobile phone market. Ballmer’s tenure at Microsoft has been marked by sagging stock performance and several poorly received product launches (Windows 8, Surface tablet). Meanwhile Nokia, once the top mobile phone maker in the world, has seen its market share gobbled up by serious competitors like Apple and Samsung who have sprinted ahead of the Finnish phone maker in the rapidly expanding smart phone market.
Consummation of the deal follows lengthy negotiations between the two companies dating back to early 2011 when they first entered into a collaboration agreement to implement Microsoft’s mobile platform on Nokia’s mobile phones. Just prior to the collaboration, Microsoft executive Stephen Elop left the software company to take over as CEO at Nokia. Now, a little over two years later, Mr. Elop will be coming back to Microsoft’s executive team, poised as a likely candidate for Mr. Ballmer’s soon-to-be-vacant CEO position.
The Nokia acquisition will mark Microsoft’s second large-scale hardware venture, the first being the Xbox gaming console, and marks a significant stride in the company’s repositioning as a major player in the consumer device business. Interestingly, the company’s agreement to give ValueAct a board seat doesn’t appear to tie-in to the Nokia deal. The investment firm, which currently owns 0.8% of Microsoft, has been rumored to have an interest in beefing up Microsoft’s business services and returning some of the company’s significant cash reserves ($77.0 billion) to shareholders, rather than expanding its consumer products. As part of the agreement, ValueAct has agreed not to engage in a proxy contest, push for any extraordinary transaction, or boost its ownership above 5%.
In addition to Elop, it is expected that four other Nokia executives will be joining Microsoft, though it is unclear in what capacity. Currently Microsoft’s board roster consists of CEO Ballmer and Bill Gates – old hands Microsoft – in addition to two finance pros, one academic, a venture capitalist, the CEO of Seagate, a former BMW executive, and a cloud computing expert. It wouldn’t be surprising to see some board seats filled by directors with more extensive mobile device experience in the near future.