NOK - Nokia Corporation - Nokia To Sell Devices & Services Business To Microsoft Transcript

    Under the terms of the agreement announced today Microsoft will acquire substantially all of Nokia's devices and services business including the mobile phones and smart devices business units as well as an industry-leading design team, operations including all Nokia devices and services production facilities, devices and services related sales and marketing activities and related support functions.

    Nokia's Chief Technology Office Organization and patent portfolio will remain within the Nokia Group. With this world class teams and assets, we can drive further value by building on our leading edge innovation and advanced research and development capabilities as well as well as expanding our patent licensing activities. Subject to approval by Nokia shareholders, regulatory approvals and other customary closing conditions, the transaction is expected to close in the first quarter of 2014 at which point approximately 32,000 people are expected to transfer to Microsoft .

    As part of the transaction, Nokia will grant Microsoft a 10 year non-exclusive license to its patents at the time of the closing. And Microsoft will grant Nokia reciprocal rights to utilize Microsoft 's patent in its HERE services. Nokia will as well grant Microsoft an option to extend this mutual patent agreement to perpetuity.

    Additionally, Microsoft will become a strategic licensee of the HERE platform and will separately pay Nokia for a four year license. This revenue stream will substantially replace the internal revenue stream HERE is currently receiving from the devices and services business. If the transaction closes, Microsoft will become one of the top three customers of HERE.

    Of the total purchase price of EUR 5.44 billion, EUR 3.79 billion relates to the purchase of substantially all of the devices and services business and EUR 1.65 billion relates to the mutual patent agreement and future option.

    In conjunction with the closing of the transaction, we expect to book a gain on sale of approximately EUR 3.2 billion, excluding any potential gains or losses related to currency translation differences triggered by the transaction.

    In addition, we will be required to evaluate upon closing whether the transaction will trigger any changes to the carrying values of any of our remaining assets or liabilities including for example a review of existing goodwill balances for impairment and the potential write-back of deferred tax assets. Following the transaction, Nokia plans to focus on its three established businesses, each of which is a leader in enabling mobility in its respective market segment: Nokia Solutions and Networks, a leader in networking infrastructure and services; HERE, a leader in mapping and location services and location services and Advanced Technologies, a leader in technology development and licensing and Risto will elaborate on this in a few moments.

    For Nokia shareholders, the transaction is expected to be significantly earnings accretive and will strengthen Nokia Group's financial position. We believe this will provide a solid basis for future investment in Nokia's continuing businesses and the potential to distribute deemed excess capital to our shareholders following the Board's evaluation of the optimal corporate and capital structure for Nokia.

    On slide six, we have provided previously published and pro-forma full year 2012 and first half 2013, non-IFRS operating margin for Nokia Group. You can see the much higher non-IFRS operating margin of our pro-forma continuing business compared to the previously published Nokia Group results. For the full year 2012, our pro forma non-IFRS operating margin would have been 8.5%. This compares favorably to the previously published non-IFRS operating margin of 0.4%.

    For the first half 2013, our pro forma non-IFRS operating margin would have been 12.1%. This compares favorably to the previously published non-IFRS operating margin of 4.2%.

    And now a few words on financing and balance sheet . In today's press release we disclosed that Microsoft will immediately make available to Nokia EUR 1.5 billion of financing at Nokia's discretion in the form of three EUR 500 million tranches of convertible notes.

    Importantly, this financing is not conditional to the transaction closing. If the transaction closes the outstanding bonds will be netted against the deal proceeds at principal and accrued interest. This financing option gives us additional ability to meet our shorter term debt obligations and we believe the terms I just described are attractive.

    In conclusion, following this transaction, Nokia's financial position is expected to be significantly stronger and Nokia's earnings profile is expected to be significantly improved. If this transaction as well as Nokia's acquisition of 50% of NSN would have closed before the end of the second quarter 2013, Nokia would have ended the quarter with a gross cash of EUR 14.9 billion and net cash of EUR 7.8 billion. This compares to the previously published amounts of EUR 9.5 billion of gross cash and EUR 4.1 billion of net cash at the end of Q2.

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