• Total Transaction Size: $5.0 B
• Implied Enterprise Value: $5.0 B
• Implied Enterprise Value / LTM Rev: 0.3x

Transaction Facts

• Microsoft (NASDAQ:MSFT) announced yesterday that it has reached an agreement to acquire the smartphone and cellular handset business of Nokia Corporation (NASDAQ:NOK) for approximately $5.0 billion, with an additional $2.2 billion for the right to license many of Nokia’s patents.
• Some analysts described the 0.3x valuation as a “fire sale,” with investors and commentators decrying the low price given Nokia’s historical significance.
• Nokia is second only to Samsung in overall phone shipments, but according to IDC, its Windows Phone platform Q2 2013 market share of 3.7% is a distant third to Android at 79.3% and iOS at 13.2%.

A Changing Ecosystem: 5 Main Points

1. A key driver of this acquisition is that Microsoft can’t afford to let its #1 manufacturer of Windows Phones add or switch platforms or fail — and there was some concern that Nokia may partner with Android or file for bankruptcy.
2. With this acquisition, Microsoft is covering the two major mobile device types through first-party products: Surface for tablets and Nokia for smartphones. (This does not include its $300 million investment in Nook, which has yet to pay off.)
3. This acquisition is also reaffirmation that Microsoft is still dissatisfied with its partner network, which it notably disrupted with Surface and its direct-to-customers strategy last year.
4. Building on its partnership with Nokia, announced in February 2011, Microsoft believes this acquisition will enable it to accelerate the growth of its share and profit in mobile devices.
5. This acquisition — made under Steve Ballmer as a caretaker CEO — has caused speculation that former Nokia CEO Stephen Elop, who ran Microsoft’s business software division before joining Nokia and making the decision to base its smartphones on Windows Phone, will be the next Microsoft CEO.