Still on Track or No-Go?
The Wall Street Journal broke the news that the merger talks had fallen through, and a number of other news outlets quickly issued reports that appeared to verify the initial story. At this point, there is no substantive reason to doubt these reports. Given the Finnish company’s recent market-share struggles, Microsoft probably believed that Nokia would be an easy pickup at a steeply discounted price. When Nokia Corporation (ADR) (NYSE:NOK)’s management team proved resistant to such a fire sale, Microsoft Corporation (NASDAQ:MSFT)’s leaders may have backed off. Other reports suggest that Microsoft was only interested in Nokia’s struggling smartphone division. To avoid harming its shareholders, Nokia may have insisted that Microsoft purchase the company in its entirety.
Potential Synergies and Increased Market Share
While it looks to be on ice for the time being, this deal could resurface in the future. Objectively, it would make some sense for these two companies to combine: Nokia Corporation (ADR) (NYSE:NOK) has struggled mightily in recent years, and its phones exclusively use Microsoft’s Windows Mobile technology. An acquisition would deepen this partnership and create value for the company’s shareholders and employees.
On the other hand, this would not necessarily lead to increased market share in the competitive smartphone market. Competing platforms from Apple Inc. (NASDAQ:AAPL) and Android have lessened the appeal of the Windows Mobile operating system, and Nokia’s smartphone business has been in decline for several consecutive quarters. Given Microsoft Corporation (NASDAQ:MSFT)’s reputation as a software company, the firm might not be able to integrate Nokia’s operations into a coherent combined company.
Prospects and Potential Investor Moves
This deal has suffered a major and potentially fatal setback. However, investors would do well to keep it on their collective radar. Given the existing partnership between Microsoft and Nokia Corporation (ADR) (NYSE:NOK), it would not be surprising to see the larger company make another pass at the Finnish firm. If Nokia continues to struggle, this outcome will become more likely. Those who believe that talks will resume might wish to initiate a tightly controlled long position in Nokia to realize a potential arbitrage premium. Of course, investors should conduct further research before making such a move.
The article Uncertainty Surrounds Potential Microsoft-Nokia Merger originally appeared on Fool.com.
Mike Thiessen has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple Inc. (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT). Mike is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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