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The Microsoft Corporation-Nokia Deal Is a Winner, Tweaks and All

Just ahead of Microsoft's  (NASDAQ: MSFT  )  fiscal 2014 third-quarter earnings report, General Counsel Brad Smith shared some news this week: After months of negotiations with regulatory agencies around the world, what was supposed to be a $7.2 billion acquisition of Nokia's  (NYSE: NOK  )  devices and services unit is finally set to close this Friday, April 25.

As Smith noted in his post, the acquisition didn't quite play out as originally intended. Some tweaks had to be hammered out between the two longtime partners, and one outstanding issue - Nokia's India operations - was glaring omitted altogether. Still, the gist of the deal remains intact, and it marks a new beginning for both Microsoft and Nokia. Now that all the "T's" have been crossed and "I's" dotted, where do the two sides go from here?

A few specs
Smith suggested changes to the deal were to be expected, saying "As with any multinational agreement of this size, scale and complexity, our two companies have made adjustments to the original deal throughout the close preparation process."

For the next year, give or take, Microsoft will manage Nokia's online domain and social media sites to help ease customers into the new arrangement. The initial agreement "did not address the management of online assets," Smith noted.

Also, as many as 32,000 of Nokia's 90,000 global personnel were expected to become Microsoft employees. Smith didn't share too many specifics, other than to say that rather than the entirety of Nokia's chief technology office remaining with the company as first envisioned, 21 mobile-phone personnel in China will transition to Microsoft. More details are expected in the next few days.

The biggest change to the original deal, in terms of what Smith shared at least, was news that Nokia's Korean manufacturing facility is no longer part of the acquisition. The Korean facility is one of Nokia's newest operations, opening the doors to what it called "a new state of the art facility," just a couple of years ago..

Noticeably absent
As mentioned in a recent article, Nokia and the India Tax Authority have, to put it mildly, agreed to disagree on outstanding tax issues. Nokia objects to setting aside as much as $500 million in an escrow account based on future taxes, and both sides refuse to budge. The long-running animosity hasn't been resolved, but Smith's blog post did not state whether the Chennai manufacturing facility is included in the deal. Though operations in Chennai have been scaled back as Nokia's smartphone market share woes grew, it remains a significant operation and a major employer in India.

Chennai is almost certainly not included in the soon-to-be-consummated acquisition. Nokia's, and by extension Microsoft's, plans for the approximately 8,000 employees working at the plant were made abundantly clear when it was announced recently each worker received a voluntary retirement scheme, or VRS, notice. A VRS is India's version of an early retirement option here in the U.S., and is designed to trim the workforce without simply terminating large numbers of workers.

Nokia executives have told representatives from India's Tax Authority in the past that they will shut the facility down if the issues aren't resolved. After making it clear over the past several months it had no intention of paying into the escrow account against future tax liabilities, coupled with Chennai employees receiving the VRS, it's pretty clear Nokia intends to shut down its India operations.

Final Foolish thoughts
So how much is the new deal worth? No word on that yet, but forgoing the manufacturing operations in South Korea, and likely doing the same in India, will have an impact. Based on little to no stock price movements of Microsoft and Nokia in the last couple days, investors appear to be relieved more than excited. Taking over half a year to close the deal would wear on most anyone.

Where do Nokia and Microsoft go from here? Since the deal was first announced last September, it was evident that this was a win-win situation for both sides. Nokia can get on with growing its solutions and networks division without the albatross of its money-losing mobile phone unit around its neck. For Microsoft, a late transition to the 21st century will be realized in the next couple of days. It's about time.

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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 April 24, 2014, at 1:19 AM, techy46 wrote:

    Author - For Microsoft, a late transition to the 21st century will be realized in the next couple of days.

    I guess if making toys for monkey's is the 21st century then the author's right.

  • Report this Comment On April 24, 2014, at 10:15 AM, jennings7240 wrote:

    I don't think NOK will ever be the major player on the world scene again. A lame duck just can't keep up with the flock.

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Tim Brugger

Tim has been writing professionally for several years after spending 18 years (Whew! Was it that long?)in both the retail and institutional side of the financial services industry. Tim resides in Portland, Oregon with his three children and the family dog.

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