Nokia: Companies that deny they're bid targets are normally protesting too much. Not Nokia. It’s hard to see any kind of deal happening to give shareholders in the troubled Finnish handset maker a boost — whether a clean takeover, a break-up or piecemeal disposals. Investors should buy Nokia only if they have faith in its turnaround strategy. There’s little obvious strategic logic in either of the two mooted bidders, Microsoft and Samsung, launching a bid. The former is an implausible owner of a hardware manufacturer.
And the US software giant stands to gain anyway if Nokia's self-help strategy succeeds, since its mobile operating system will be central to the group’s revival.
Samsung, Nokia's closest rival by phone volumes, needs neither the Finnish group’s technology nor global network. The Korean conglomerate would also face formidable cultural and anti-trust hurdles. Financially, the logic is weak too. Nokia isn’t cheap. When US handset rival Motorola hit difficulties in 2009, its market value troughed below 0.2 times trailing sales, Bernstein notes, although it started with less cash and a smaller market share.
Analysts polled by Reuters expect Nokia to make sales of euro 32 billion this year, adjusting for the accounting treatment of its telecoms-equipment joint venture Nokia Siemens Networks. That puts Nokia on about 0.5 times 2011 sales. A break-up wouldn't unearth hidden value. Navteq, which Nokia bought for $8.1 billion in 2007, is one of two world-leading digital mappers. Analysts’ valuations are all over the place, but a rough mid-point value today is only about euro 2.5 billion. Plus it’s central to the Microsoft alliance.
Exiting NSN looks easier. With a newly strengthened US presence and improving margins, it could interest Chinese rival Huawei, and, Bernstein reckons, fetch euro 4 billion. Meanwhile, the troubled handset business still has value in its 10,000-plus patents, which could be sold for perhaps euro 5 billion if the business was shuttered. But add euro 6.4 billion in cash and that still only adds up to euro 17.9 billion, or 9 per cent more than Nokia’s current market value — hardly worth the execution risk. The big challenge for this former premium brand and one-time market leader is to dodge history’s dustbin by making covetable phones again. That probably means carving out and dominating a middle-market smartphone segment based around Microsoft's Windows Phone platform. It’s hard to see any other option for Chief Executive Stephen Elop, and his investors. He needs to get on with it.
