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What A Delayed Deal Means For Microsoft And Nokia

Andrew Tonner
March 25, 2014

As a deal that centering around two of the world's largest tech companies with operations spanning several continents and would require the blessing of regulators the world over, suffice to say Microsoft's (NASDAQ: MSFT) deal last year to buy Nokia's (NYSE: NOK) handset business involves its fair share of complexity.

However, with a sticker price of roughly $7.2 billion and few, if any, material antitrust issues to overcome, it seemed both Microsoft and Nokia would have plenty of skin in the game to get the deal done as quickly as possible.

When the deal was first announced last September, Microsoft and Nokia said they hoped to complete the transaction no later than the first quarter of 2014. However, things haven't necessarily gone as planned, and recently, Microsoft and Nokia actually amended their targeted closing date for this multi-billion dollar deal to next month at the earliest .

So what went wrong, and what does this mean for investors in either Microsoft or Nokia? Let's have a look.

Hurry up and wait
Let's start with the good news, namely that everyone and their mom still expects the Nokia handset sale to Microsoft to eventually close. There's no looming threat of this deal somehow breaking up. This is essentially a done deal. It's just now a question of when, not if, this deal will be sign, sealed, and delivered.

And in that vein, many of the most important hurdles have been cleared as Microsoft and Nokia have received approval for the deal in 15 different markets over 5 continents, including critical regulatory approval from the U.S and the European Union.

The key roadblocks have been two-fold. For staters, Nokia is still awaiting approval from China's key regulators, which reports depict as likely to be granted in an acceptable timetable. Secondly, and perhaps more importantly, Nokia is also working to overcome issues with India's tax authorities. It's unclear to what extent this dispute will have over the deal's eventual closing, this appears to be the more critical of the two factors holding Nokia back at present. These tax issues to relate to a key Nokia handset plant in Chennai that will be transferred to Microsoft at the closing of the deal. Again, these are both issues that Nokia and Microsoft should be able to overcome eventually, but this delay does come with its costs.

What this means for Microsoft and Nokia investors
In all reality, the delay should do little to impact Microsoft shareholders. Nokia is already the largest maker of Windows Phone products with its Lumia line of smartphones, and it appears shifting timing on the deal would do little to alter the product launch schedules Microsoft has in development.

This deal is slightly more problematic for Nokia shareholders