Nokia Oyj shares surged yesterday after it announced plans to buy out partner Siemans AG’s share of their valuable network equipment joint venture, betting on the technology to run fourth-generation (4G) networks after it stumbled as a maker of smartphones.
Loss-making Nokia will gain full control of the profitable Nokia Siemens Networks (NSN) for a cheaper than-expected US$2.2 billion, analysts said, although they added that the acquisition would pressure Nokia’s balance sheet.
“With this transaction, Nokia buys itself a future, whatever happens in smartphones and feature phones,” Bernstein analyst Pierre Ferragu wrote in a note to clients.
Nokia shares were up nearly 8 percent to 3.07 euros by 7:40am.
Nokia fell behind rivals Apple Inc and Samsung Electronics Co in the smartphone race, making the controversial decision to switch to Microsoft Corp’s untried Windows software in 2011.
In contrast to Nokia’s phone business, NSN turned profitable in the second quarter of last year after slashing costs and as its focus on 4G Long Term Evolution (LTE) networks began to pay off.
NSN’s adjusted earnings before interest and taxes amounted to 196 million euros (US$255.8 million) in the first quarter of the year.
Nokia will pay 1.2 billion euros in cash and the other half-a-billion euros in the form of a secured loan from Siemens to be repaid later.
“Nokia Siemens Networks has established a clear leadership position in LTE, which provides an attractive growth opportunity,” Nokia chief executive Stephen Elop said in a statement.
Elop said NSN would continue to run as an independent entity and did not rule out listing or selling it.