Microsoft deal delay may mean more Nokia patent concessions

HELSINKI Mon Mar 24, 2014 9:37am EDT

A photo illustration of a man silhouetted against a Nokia logo in the central Bosnian town of Zenica January 23, 2014. REUTERS/Dado Ruvic

A photo illustration of a man silhouetted against a Nokia logo in the central Bosnian town of Zenica January 23, 2014.

Credit: Reuters/Dado Ruvic

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HELSINKI (Reuters) - Nokia does not expect to close the sale of its phone business to Microsoft until April as talks with Asian regulators drag on, it said on Monday, fuelling speculation it may have to make technology patent concessions to get the deal done.

After selling its loss-making handset business, Nokia - which expected the deal to close this month - will derive more than 90 percent of sales from its telecom network unit, but its patent portfolio is seen as a promising source of future growth.

As a phone maker, Nokia has paid rivals for the use of their licenses as well as charging for its own. A newly restructured Nokia would be freer to push up those fees, analysts say.

Expected future revenue from patents make up as much as half Nokia's roughly 20-billion-euro market capitalization, they say.

Google and Samsung Electronics have asked Chinese regulators to ensure the 5.4 billion euro ($7.4 billion) deal between Microsoft and Nokia would not lead to higher licensing fees, according to media reports.

"(The delay) is a bad sign. They have been discussing with authorities for quite a while already, and they still need more time," Nordea Markets analyst Sami Sarkamies said.

"The biggest risk is in the upside of their patents. It looks like Nokia will have to make bigger concessions to push the deal through," he said.

Nokia shares fell 0.7 percent to 5.24 euros by 1215 GMT.

The Finnish firm said both companies remain committed to the deal, and Microsoft said it expects it to close next month.

"We are nearing the final stages of our global regulatory approval process," Brad Smith, Microsoft's general counsel, said on the company's website. "Currently we are awaiting approval confirmation in the final markets."

Nokia also reiterated that its tax disputes in India would not have an impact on the deal schedule.

Indian authorities hit the company with a new $414 million tax claim last week, following a Supreme Court decision ordering Nokia to give a $571 million guarantee before transferring its Chennai factory to Microsoft.

Pohjola Markets analyst Hannu Rauhala said Nokia and Microsoft had several options on how to deal with the tax issues while the antitrust problem was essentially out of their hands.

"There is always the risk of further postponements (in deal closure). Based on the information they have given today, it can't be ruled out," he said.

The time needed to close the deal, announced last September, is not exceptional for Microsoft, which took five months to complete its purchase of online chat company Skype in 2011. Nokia and Microsoft have already received approvals from the European Commission and the U.S. Department of Justice.

Rauhala said that delays to the deal could also push forward Nokia's strategy update. Nokia had been expected to name a new chief executive and outline its new strategy after the deal.

Along with its network unit and patents, future Nokia also includes its navigation software business HERE.

(Additional reporting by Simon Johnson in Stockholm and Bill Rigby in Seattle; Editing by Louise Ireland)

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Comments (6)
RahJ wrote:
Nokia Chennai plant also might become part of the deal sooner or later as they will settle the case with indian IT dept . India is a big market and ignoring it or closing threats by nokia are only going to damage its sales. ~ http://www.aamindia.com/

Mar 24, 2014 3:04am EDT  --  Report as abuse
SLks wrote:
India just became irrelevant. It would appear Msft is willing to pay substantially the same amount with or without the indian plant. Indian tax thugs overplayed their hand, now they will get nothing:

“Nokia reiterates that ongoing tax proceedings in India have no bearing on the timing of the closing or the material deal terms of the anticipated transaction between Nokia and Microsoft.

Mar 24, 2014 5:12am EDT  --  Report as abuse
SLks wrote:
My read is, they’re waiting on confirmation from china…that sounds like they already have informal agreement in place…as hinted at by nokia’s India counsel in testimony before the Indian SC a week ago.

Just paperwork. We could be a couple weeks away from close.

Very encouraged that they say the indian situation will NOT materially affect the ‘terms’ of the closing…very possibly Nokia will get the same amount for the sale despite the lack of the indian plant.

I expect the china approval will resemble the taiwan one recently out…most of the patent fee burden will be placed on msft as the enlarged entity, Nokia as the divesting entity should not be subject to any significant burden (this after all is supposed to be anti-trust review) Taiwan only asked that nokia commit to FRAND for standard essential patents; which is what nokia has already committed to.

Mar 24, 2014 3:33pm EDT  --  Report as abuse
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