Nokia's headquarters in Espoo, Finland. Image source: Nokia.
Nokia (NOK 6.11%) has found a buyer for its mapping operations. After many moons of speculation and guesswork, the search has ended.
But the rumor mill may have lit too many fires under Nokia's shares. Rather than jumping on the news of a real-world cash infusion, Nokia shares sank 0.6% on Tuesday. Nokia's stock trades within spitting distance of 52-week lows, and 23% below annual highs.
Early hunches and conjectures pointed to a variety of tech giants buying Nokia HERE, the map-making platform that dominates in-car navigation systems today. The business unit had a book value of roughly $2.1 billion, and was seen to command a large buyout premium on top of that. And why not? Nokia spent $8.1 billion to purchase mapping specialist Navteq in 2007, which later morphed into Nokia HERE. Even if sold at double the book value, Navteq/HERE would turn out to be a terrible investment for Nokia.
But the final price tag was far smaller than $4.2 billion. According to The Wall Street Journal and its anonymous insider sources, Nokia will unload HERE to a consortium of German auto giants for a mere $2.7 billion.
That's just 1.2 times Nokia HERE's book value, and a 67% steel bath over Nokia's eight years of map service ownership.
Tech companies were reportedly interested all along, but those temporary bidding partnerships died before reaching a deal. The talks with Audi, Daimler, and BMW, on the other hand, have been exclusive since early July. There's no overheated bidding war going on -- which explains the disappointingly low final offer.
Now, this is still not an official announcement, just an anonymous report from sources unknown. These pre-pre-pre-announcements don't always pan out, and the Journal admits that these talks might fade out as well. Nevertheless, I'm willing to take the Journal's insider report at face value.
Why?
Nokia is staring down the barrel of a sawed-off shotgun. I think it's loaded, too.
The company is getting desperate to slim, trim, and cut costs wherever possible in order to double down on its network installation and operation services. That's why Nokia is merging with fellow turnaround candidate Alcatel-Lucent (NYSE: ALU). Without that pressing need to get reborn into a business model that actually works, Nokia's management wouldn't have pulled the trigger on the Alcatel deal.
The desired end result is beautifully simple: Nokia should become a pure play on telecom-scale network operations, and will leave everything else in someone else's hands. Adding Alcatel's hardware kind-of, sort-of pulls Nokia in that direction (though it also limits the company's choices of big-iron hardware partners), and getting rid of HERE is another step on the same journey.
But nobody seems to want this thing, short of paying pennies on the dollar in a three-way, low-risk consortium. Mapping specialists looked like hot commodities for a short time, but then the smartphone era all but erased that opportunity. Chances are, Nokia HERE will only lose more value the longer Nokia drags its feet. So let's settle for a less-than-ideal exit strategy, because it ain't getting any better.
Final words
As far as uncredited reports go, this one makes plenty of sense. It doesn't exactly make me want to buy Nokia shares, but it does show that the company's management has decided to really focus on a new strategy. A risky one in a hotly contested market, sure. But then, doesn't that describe nearly every sector right now?
So Nokia HERE is most likely moving to Germany for a song. Nokia will pocket that pittance and be happy to see the division go. What's next? Another epic struggle, of course.
But what else is new?
