Nokia to buy out Siemens equipment venture; shares surge

Mon Jul 1, 2013 10:17am EDT
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By Terhi Kinnunen and Leila Abboud

HELSINKI (Reuters) - Nokia shares surged on Monday after it announced plans to buy out Siemens AG's share of their network equipment joint venture, betting on the technology to run 4G networks as it struggles in the smartphones business.

Loss-making Nokia gains full control of the profitable venture Nokia Siemens Networks (NSN) for $2.2 billion, a cheaper than-expected price, analysts said, though they also noted the acquisition would put pressure on 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.

However, the cash cost is still a risk for a company that is burning money to keep its handset business running.

Rating agency Fitch said the acquisition made strategic sense, but added that the visibility of Nokia's mobile phone business was still very limited and that it was taken into consideration of Nokia's BB- or junk rating.

Nokia's stock was up around 5 percent, having earlier hit a five-month high, a rally fuelled in part by short covering. Nokia has 14.6 percent of its shares out on loan, making it one of Europe's most heavily shorted stocks by hedge funds, which were caught off guard by news of the buyout and scrambled to close their negative bets on the stock, traders said.

Siemens shares were more than 2 percent higher, as the German firm prepared to get out of a business that analysts said had weighed on the stock due to high restructuring costs.

Morgan Stanley said the price Siemens would receive for its stake was at the low end of estimates, but it was "encouraged by the fact that this is a clean solution".   Continued...

The logo of the telecommunications services company Nokia Siemens Networks is pictured on top their office in Berlin October 9, 2012. REUTERS/Fabrizio Bensch