Ring! Ring! The news that telecom industry analysts have been waiting to hear arrived today in the form of Siemens' (NYSE: SI ) announcement that it will abandon the cell phone game and sell off its operations in Brazil, Germany, and China for a veritable downloadable song.
According to news reports, Siemens is recording a 350 million-euro loss on the deal, in which it will hand over its cell phone unit to Taiwan's BenQ and buy for itself a 2.5% interest in the unit's new owner. As for the financial terms of the transaction, those aren't entirely clear, but from what is known, they're not at all favorable to Siemens.
The terms of the deal apparently obligate Siemens to assist BenQ with marketing and development of patents, permit BenQ to use the Siemens trademark on phones BenQ produces for the next five years, and -- here's the kicker -- net BenQ 250 million euro in addition to the business that it's acquiring. Now, if according to Siemens, the Germans are paying just 50 million euro to acquire a 2.5% stake in BenQ, that suggests that when all's said and done, Siemens is selling its cell phone unit for negative 200 million euro. In other words, it looks like Siemens couldn't even give the business away -- it had to pay BenQ to take it.
Even so, Siemens executives probably still count themselves lucky. With their cell phone division having consumed more than 500 million euro over the last twelve months, the imperative here was almost certainly: "get out at any cost."
Still, the Siemens sale stands in marked contrast to, say, IBM's (NYSE: IBM ) recent deal to abandon one of its own declining business units (personal computers) in favor of China's Lenovo. In that deal, as you may recall, IBM sold off its PC unit for a $1.25 billion in cash and Lenovo stock, and also stuck Lenovo with $500 million in debts attached to the unit. A great deal? Perhaps not.
But at least in the IBM deal, it was the buyer that did the paying.
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Fool contributor Rich Smith has no position in any of the companies mentioned in this article.