Nokia Shareholders Vote: There's One in Every Crowd

Not all acquisitions are created equal. Of course, all acquisitions are scrutinized by analysts and shareholders, especially the megadeals, because they can fundamentally change a company. That's certainly the case with Microsoft's (NASDAQ: MSFT  ) $7.4 billion decision to acquire the devices and services unit of Nokia (NYSE: NOK  ) .

Outgoing CEO Steve Ballmer has gone on record saying that one of his biggest regrets was taking too long to dive into the explosive mobile-computing market. That's one of the reasons the acquisition of Nokia is perfect, for both parties: It solves Microsoft's mobile "problem" in one fell swoop, and Nokia can concentrate on its money-making networking business. And most Nokia shareholders got it, as evidenced by its nearly 60% jump in stock price since the deal was announced in early September, and the overwhelming approval of the deal in today's shareholder vote. More than 99% of shareholders voting gave it a thumbs-up. The question is, what's up with the folks who shot it down?

Talk about your win-win
It's no secret that Nokia's devices and services unit has been a drag on earnings. In the recently completed third quarter, Nokia actually increased mobile phone sales by 6% compared to Q2, a nice change of pace. Unfortunately, even with an improvement in smartphone unit sales year over year, earnings were still down 19% and were undermining Nokia's positive networking and map results.

Just as with the Microsoft devices and services deal, Nokia's decision to buyout Siemens, its former partner in the Nokia Siemens Network, was spot on. Like him or not, focusing on the profitable networking business was former Nokia CEO Stephen Elop's finest hour. Last quarter marked the sixth straight period of profit for NSN (now Nokia Solutions and Networks). Toss in its HERE maps unit and an extensive patent portfolio, and Nokia's primed for future growth.

For Microsoft, not only does the Nokia deal instantly solve its desire to become a player in manufacturing mobile devices, the timing could not be better. I wrote recently, the stars are aligning in all the right places for Microsoft's Windows Phone OS.

In addition to gaining market share around the world, Windows Phone is making huge strides in Western Europe. With 9.8% of the smartphone OS market in Europe's five key markets, Windows Phone has more than doubled its piece of the OS pie compared to last year in the countries of Spain, Italy, France, Germany, and the U.K.

The stellar growth in Western Europe should really please Microsoft bulls when it's coupled with the results of a recent Gartner survey. For the first time this year, according to Gartner, Western Europe enjoyed an improvement in smartphone sales. Just as Windows Phone gains momentum? That's fortuitous timing, to say the least.

And let's not forget Nokia's recently introduced phablets, the Lumia 1520 and low-cost Lumia 1320. For the third quarter of 2013, the 56 million phablets sold made up 22% of all smartphone devices and is up from the prior quarter's 45 million units. Phablets are a lot more than a fly-by-night mobile fad, and now Microsoft is armed with some serious ammunition.

Final Foolish thoughts
The deal for Nokia's devices and services unit is ideal for both parties, and the timing couldn't be better. Nokia is free to focus on its profitable networking and maps units, and Microsoft solves its mobile needs overnight. Who can't see that? Apparently, about 0.3% of Nokia shareholders.

Another way to cash in on smartphones
There's one company that sits at the crossroads of smartphone technology as we know it. And it's not your typical household name, either. In fact, you've probably never even heard of it! But it stands to profit NO MATTER WHO ultimately wins the smartphone war. To find out what it is, click here to access The Motley Fool's latest free report: "One Stock You Must Buy Before the iPhone-Android War Escalates Any Further..."


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 20, 2013, at 1:36 AM, lee654 wrote:

    Agreed!

  • Report this Comment On November 22, 2013, at 8:47 PM, FrankTheFool wrote:

    I voted "No" for 4700 shares. Thanks for practically branding me a moron.

    I've held Nokia for years and years. I made a lot, selling some near its all time high, lost a lot on what I held onto thru the crash, and made some back after buying near the bottom. Over all, I am about even.

    I held for the gains, in case Nokia pulled off a resurgence (as Apple did), and could afford to lose it all, if not.

    Microsoft needed this deal about 10,000 times more than Nokia did. Nokia had a viable business even if it went out of the phone business, a situation reflected in its pre-deal stock price, as if that is what the market expected.

    It remains to be seen if the PC will go the way of the dinosaur. But MS has a huge infrastructure to support, and it gets increasingly hard to find enough new bells and whistles to add to Windows to get users to buy new editions very often.

    So MS's real prospect for growth to match the past is in: phones and mobile.

    MS was never going to jump off the burning oil platform. MS did this for one purpose only: to make the kind of money Apple and Samsung are making on phones, and will make on other mobile devices to come.

    Look around: it can't possibly start from scratch, and there isn't anybody else to buy.

    It has to have Nokia! But at what price?

    Nokia should have been calling MS's bluff, making MS pay what the deal was worth to MS.

    But instead it was MS calling Nokia's bluff, as if it would pull the plug.

    Nokia should have either 1) made MS stick to its original deal and put in enough of its gigantic resources in to make it work, or; 2) made MS pay thru the nose, say double or even triple--whatever Nokia could extort, knowing MS would not walk away.

    MS and Nokia window-dress (pun intended) the deal with some job saving and butt covering fig leafs. Sure, it paid more than crumbs; but nowhere near a valuation based on the potential upside to MS.

    This deal has all the feel of MS coming in and taking what it wants.

    I wanted the upside potential that MS got. If I want to make a bet, I have to go into the market and buy shares--not go into a back room and make a deal. If MS had to play by the same rules, it could buy 100% of Nokia in the market. And sell off what it did not want. Imagine what that would have done to Nokia's stock price!

    99.3% voted "Yes."

    Did I vote "No" because I was too big a moron to see any of the benefit of the deal to Nokia?

    No.I just don't like being pushed around.

    Writers like you would have nothing except the party line put out by MS and Nokia.

    What nobody reported was what percentage of outstanding shares voted. I wonder if there weren't a lot of shareholders who felt as I do, who, like me, saw the writing on the wall, but did not bother to take the time to register a protest vote.

    As for you, why don't you go out and do some real reporting about the back story here: capitalism for the masses; back room deals for the anointed. It's a lot harder than sitting in your office throwing barbs at fools who don't think like you do.

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