The deal marks a major step in Microsoft's push to transform itself from a software maker focused on making operating systems and applications for desktop and laptop computers into a more versatile and nimble company that delivers services on any kind of Internet-connected gadget.
"It's a bold step into the future -- a win-win for employees, shareholders and consumers of both companies," Microsoft CEO Steven Ballmer told reporters at Nokia's headquarters in Finland Tuesday.
Microsoft announced last night that it will pay 5.44 billion euros cash, or $7.18 billion, to acquire "substantially all" of Nokia's devices and services business (its cell phones unit) and to license Nokia's patents. The purchase-and-license price is approximately half of Nokia's current market capitalization, and nets Microsoft a division responsible for approximately 54% of the revenues Nokia generated in the last fiscal year.
In a statement, Microsoft explained the purchase by saying it "aims to accelerate the growth of its share and profit in mobile devices through faster innovation, increased synergies, and unified branding and marketing."
Because Nokia is a foreign company, Microsoft points out that it is able to use foreign-deposited cash, from profits that the company has earned abroad, to make the sale -- avoiding the need to repatriate and pay taxes on that cash.
The proposed price consists of 3.79 billion euros for the Nokia unit that makes mobile phones, including its line of Lumia smartphones that run Windows Phone software. Another 1.65 billion euros will be paid for a 10-year license to use Nokia's patents, with the option to extend it indefinitely.
Microsoft and Nokia plan to consummate this sale in the first quarter of 2014, shareholders and regulators permitting. Ballmer was quoted in the company press release as saying that the purchase will begin being accretive to earnings in fiscal 2015.
-- Material from The Associated Press was used in this report.