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Microsoft Acquisition of Nokia: An Analysis from Strategic and Financial Perspective*

CASE STUDY, FINANCIAL MANAGEMENT
ET Cases - FLAME, 11 Pages
AUTHOR(S) : Joshi Sujata- Associate Professor, Chirputkar Abhijit- Professor, Shilpy Sinha- MBA Student, Shivam- MBA Student - Symbiosis International University, Pune

Case Preview

Microsoft Acquisition of Nokia: An Analysis from Strategic and Financial Perspective

 

”We are excited and honored to be bringing Nokia’s incredible people, technologies and assets into our Microsoft family. Given our long partnership with Nokia and the many key Nokia leaders that are joining Microsoft, we anticipate a smooth transition and great execution. With ongoing share growth and the synergies across marketing, branding and advertising, we expect this acquisition to be accretive to our adjusted earnings per share starting in FY15, and we see significant long-term revenue and profit opportunities for our shareholders.”1

– Steve Ballmer, Microsoft’s CEO

 

“Building on our successful partnership, we can now bring together the best of Microsoft’s software engineering with the best of Nokia’s product engineering, award-winning design, and global sales, marketing and manufacturing, with this combination of talented people, we have the opportunity to accelerate the current momentum and cutting-edge innovation of both our smart devices and mobile phone products.”2

– Stephen Elop, Nokia’s CEO


“Microsoft will record a charge in the fourth quarter of fiscal 2015 for the impairment of assets and goodwill in its Phone Hardware segment, related to the Nokia Devices and Service business.”3

– Steve Ballmer, Microsoft’s CEO


On 3rd September 2013, Microsoft Corporation (NASDAQ:MSFT) and Nokia Corporation (HEL:NOKIA) entered into a joint venture (JV), whereby Microsoft Corporation (Microsoft) acquired all of the Device and Service business of Nokia Corporation (Nokia) through an all-cash deal. The Microsoft-Nokia JV was the 2nd largest merger in the history of Microsoft after the acquisition of Skype Technologies, the VOIP innovators, for $9.2 billion...................


 1 “Microsoft to acquire Nokia’s devices & services business, license Nokia’s patents and mapping services”, https://news.microsoft.com/2013/09/03/microsoft-to-acquire-nokias-devices-services-business-license-nokias-patents-andmapping-services/, September 2013
2 Ibid.
3 Gregg Keizer, “Microsoft writes off $7.6 bn, admits failure of Nokia acquision”, http://www.computerworld.com/article/2945371/smartphones/microsoft-writes-off-76b-admits-failure-of-nokia-acquisition.html, July 2015

Teaching Note Preview

Microsoft Acquisition of Nokia: An Analysis from Strategic and Financial Perspective

 

Synopsis

The case set in 2014, depicts the dynamics of multinational business ecosystem with US tech giant Microsoft Corporation (MSFT), aspiring to be the leader in the Services and Devices industry, by acquiring the handset business of Nokia Corporation (HEL: NOKIA). The case study, through minute detailing and multi-dimensional market analysis, will help the students understand the implications of the deal from the strategic and financial perspective.

The Global Smartphone Industry is highly competitive with ever-changing technological landscape. The business strategies of the companies are evolving to cater the emerging global smartphone market. Multiple companies globally consider merger and acquisitions as the best strategic tool for effective growth and shareholder’s wealth maximization. The analysis of the case using tools and techniques such as SWOT, PESTEL, Porter’s Five Forces Model, etc. will provide analytical reasoning for strategic intent of the acquisition. To understand the financial impact, the comparative analysis of the financial parameters such as Return on Total Assets, Return on Capital Employed, Return on Equity, Gross Profit Margin, Net Profit Margin, Debt to Equity Ratio and value of the companies pre- and post-merger can be adopted and the impact of the financial ratios on the balance sheet and visa-versa can be discussed. The case can be used to analyze and highlight the acquisition strategy form the strategic fit perspective, the benefits/advantages envisaged by both the companies.

In order to enrich the understanding of the students and develop logical approach for solving complex case studies, mergers & acquisition of other companies in the same decade could be studied and inferences could be drawn for case comparison. The students can come up with their own version of strategies and their financial impact under such scenarios...............

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Abstract

US tech giant Microsoft Corporation (NASDAQ:MSFT), in 2014 announced its acquisition of the Finnish communication company – Nokia Corporation’s (HEL: NOKIA) handset division for $7.2 billion. Microsoft Corporation (Microsoft) aspired to be the leader in the services and devices industry. However, by July 2015, the profitability ratios for Microsoft such as Return on Assets (ROA), Return on Equity (ROE), Return on Invested Capital (ROIC), Gross Profit Margin (GPM), Net Profit Margin (NPM) have shown a decline from 2014 to 2015. Besides, EPS figure has also declined from 2014 to 2015.

The objective of this case study is to understand the implications of the deal from the Strategic and Financial perspective. To highlight the financial impact, the case presents a comparative analysis of the financial parameters such as ROA, ROCE, ROE, GPM, NPM, Debt to Equity (D/E) Ratio, pre and post-merger valuations of the companies, etc. The case analyzes and highlights the acquisition strategy from the strategic fit perspective as well as the benefits/advantages envisaged by both the companies.



Pedagogical Objectives

  • To understand the concept of M&A and its implications on strategy, technology, marketing, and financial intents, IP acquisition and licenses
  • To understand the role of PESTEL factors and SWOT analysis in strategic decision making
  • To understand financial implications of the strategy on a business by discussing financial parameters such as ROA, ROCE, ROE, GPM, NPM, D/E, EPS etc.

Case Positing and Setting
MBA Program – Mergers and Acquisitions course – To understand certain concepts of Finance and Strategy


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