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Microsoft to buy Nokia phone unit in £4.6bn deal

The software giant is looking to make gains in the mobile market

Microsoft is set to take over Nokia’s mobile phone division and acquire a broad portfolio of patents in an enormous €5.4 billion (£4.6 billion) deal, it has announced.

Traditionally the world’s foremost software company, the acquisition marks one of the final stages in Microsoft’s attempts to branch out into all sorts of hardware products, and in turn offer competition to the dominance of Apple.

Nokia, based in Espoo, Finland, is a long way from leading either the smartphone or tablet device markets, struggling in the wake of the trendsetting iPhone and iPad and a range of handsets which use the world’s most popular mobile operating system, Android.

But they have been working on breaking their rivals’ strangleholds in collaboration with Microsoft since a partnership was forged in 2011. An estimated 75 per cent of all devices to use the Windows Phone operating system are from Nokia’s Lumia range, and that background means many see the deal announced late last night as the next logical step.

Microsoft is backing itself to make a better go of catching up with the competition if it has complete overall control of how devices make the best use of its software.

Chief executive Steve Ballmer said in a statement this morning: “It's a bold step into the future - a win-win for employees, shareholders and consumers of both companies.”

Microsoft is to buy Nokia’s smartphone business and patents for €5.44bn ($7.2bn) in an all-cash deal

The respective boards hope to complete the deal early next year, subject to a number of conditions – including approval by Nokia’s shareholders. If it is successful, around 32,000 Nokia employees will transfer to Microsoft, which already has a staff of about 99,000.

The agreed price consists of €3.79 billion for the Nokia unit that makes mobile phones, and another €1.65 billion for a 10-year license to use the Finnish firm’s patents, with the option to extend it indefinitely.

It will be the second most expensive acquisition in Microsoft's 38-year history, behind the $8.5 billion (€6.45 billion) purchase of internet calling and video conferencing service Skype.

With Steve Ballmer set to stand down as Microsoft CEO next year, the deal has fuelled speculation that Nokia head Stephon Elop – also a former Microsoft executive – could take over the reins. Tony Bates, who ran Skype, is also regarded as a potential successor to Ballmer.

The money to buy Nokia's smartphones and patents will be drawn from the software giant’s overseas accounts, which as of 30 June amounted to nearly $70 billion.

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