MICROSOFT ACQUISITION OF NOKIA 8
MicrosoftAcquisition of Nokia
MicrosoftAcquisition of Nokia
Amerger is a consolidation of two organizations or corporate entitiesinto one entity. It is a strategic business expansion process wheretwo companies join together to form one organization with a singlecorporate structure. In a similar way, an acquisition is a takeoverof a company by another where one company establishes itself as theacquirer, while the other is the target (DePamphilis,2010).Mergers and acquisitions are strategic processes that allow companiesto advance their targets of expanding their financial, corporate ormarket structures (DePamphilis,2010).To explore this strategy, this paper will analyze the acquisition ofNokia’s Nokia Handset & Services Business by MicrosoftCorporation in 2014.
Microsoftis a publicly traded multinational headquartered in Washington, DC,America and develops, supports, licenses and manufactures computers.The company produces and sells computer software, personal computers,computer electronics and related services. It is one of the world’slargest computer software manufactures and is famous with itsMicrosoft brand of operating system, Windows and Microsoft officeprograms (Wash,2014).The company has financial strength and has acquired several companiesin the course of its business growth and expansion. However, it isthe acquisition of Nokia Handset and Services Business in 2014 thatmakes the company a strategic unit to study the circumstances beingthe buyout (Wash,2014).With this view, Microsoft is the acquire in relation to itsacquisition of Nokia, the target.
TheTarget, Nokia Handset and Services Business
Nokiais a communication and IT multinational company headquartered inFinland and manufactures and sells telecommunication mobilehardware, mobile phone software and related devices and services. Thefirm has achieved success in the global market, which makes itsacquisition by Microsoft an interesting case to study in terms ofcircumstances behind the sale. As of September 2013, Nokia Handset &Services Business was the world’s largest seller of mobile phones(Wash, 2014). It is at this level of success that Nokia sold all itsNokia Handset & Services Business to Microsoft. Therefore, Nokiabecomes the target in relation to the acquisition by Microsoft, theacquirer.
Reasonsfor the Acquisition Decision
Thefirst main reason for the decision by Nokia to be acquired wasfinancial problems that surrounded its Handset and Services Business.Since the end of 2011, Nokia faced financing difficulties thatresulted in the laying off of its 4000 employees in its EuropeanSmartphone manufacturing center (MoneyControl, 2011).By the mid of the same year, the company announced its global layoffof 10,000 employees and the closure of its research centers inCanada, Germany and Finland (MoneyControl, 2011).In the same year, the company needed funds and ended by selling itsNokia House. Therefore, to redeem the company, the decision to beacquired was inevitable. This explains why in the following year,negotiations started for the acquisition that concluded on 25 April2014.
Anotherreason for the decision by Nokia to be acquired is the challenges inthe market of mobile phones, especially the Smartphones tocompetitors (Jones,2013).With the launch of smartphones such as the apple’s iPhone in theUnited States, and the competition from the Chinese Smartphonemanufacturers, Nokia’s market declined significantly. This explainsthe financial difficulties discussed above, which led to the decisionto sell its Handset and Services Business to Microsoft. Therefore, toinject new financial resources to expand the market, selling out thebusiness to Microsoft was the most appropriate solution (Jones,2013).This explains why the two companies have cooperated in the productionof Nokia smartphones with Microsoft’s Windows operating system.
Theeffects of the Acquisition
Thepositive effect of the acquisition was to introduce financialstrength to Nokia, a company that was experiencing financialdifficulties. Through the acquisition of the business, Microsoft tookover the financial responsibilities of the largest mobilemanufacturer and seller at the time. For instance, Microsoft andNokia entered business partnership and assisted the company to startthe windows phone and the Lumia brands (Wash,2014).Even though the deal was unveiled before the acquisition, thecooperation shows the extent at which Nokia was in need of financialassistance from Microsoft to advance its business development (MoneyControl, 2011).In addition, the company gained market networks that Microsoft hadpossessed, which may help it to expand its market reach, in themiddle of the stiff competition.
Theother positive effect of the acquisition was the development ofmobile phone business arm of Microsoft through its subsidiary, theMicrosoft Mobile Oy (Kamal,2014).The formation of this company became the main advantage to Microsoftfrom the acquisition of Nokia, since it expanded the firm’sbusiness structure. The positive effect is that the CEO of Nokia willstill run the business under Microsoft’s control and ownership.This will revive the falling business performance of Nokia amid theincreasing competition. In addition, the acquisition promoted thealready existing business relationship that had Microsoft buy Nokia’sAsha brand of mobile phone.
Theacquisition of Nokia by Microsoft led to some internal changes to thestructures of both companies. First, the business assets of Nokiamobile phones changed ownership to the acquirer, Microsoft. Secondly,there was a creation of Microsoft Mobile Oy, a new subsidiary ofMicrosoft in Finland, which became the owner of the assets and theMicrosoft’s controlling arm of Nokia (Wash,2014).Thirdly, the Nokia company plant in India was left independent, butto produce products for Microsoft. In addition, there were changes inthe business structures in terms of brands. For instance, Microsoftgained ownership of the brands, Nokia Lumia and Asha with Nokiahaving limited licensing (Wash,2014).
Themajor differences between the two companies before and after theacquisition relate to the organizational structure and businessbrands. Before the acquisition, Microsoft did not have a fullsubsidiary in Finland. With the acquisition, the business empire ofMicrosoft expanded with the addition of the new subsidiary. Secondly,Microsoft expanded its business with a plant in India that producesits products as agreed under the deal (Wash,2014).On the business side, Microsoft had not fully entered the mobilephone industry with full ownership and licensing rights and brands(Jones, 2013). With the acquisition of Handset and Services Business,Microsoft now owns Lumia and Asha mobile phone brands as well asmobile phone manufacturing sites.
Onthe side of Nokia, there were significant changes in its business andorganizational structure. Before the acquisition, the company wasfully owned by its shareholders with significant equity control.However, after the acquisition, the Handset and Services Business wasfully owned by Microsoft under the Microsoft subsidiary in Finland(Wash,2014).However, the management teams and employee structures were notaffected by the acquisition by Microsoft.
Humanresource Management Practices
Thenotable human resource management changes affected Nokia, with someexecutives joining Microsoft. After the acquisition, Stephen Elopjoined Microsoft as the head of devices team, a position that madehim control devices like Surface Lines and Xbox. At the Nokiabusiness, Rajeev Suri replaced Elop as the CEO (Wash, 2014). Thereason for this change was to retain the management practices andstrategies of Mr. Elop and continue with the Nokia’s plans. Inaddition, the change was to introduce the experience that Mr. Elophad in the mobile while at Nokia.
However,the rest of the human resource practices of the two companies werenot significantly modified to reflect the merger. The change was therelated to the management is the transfer of the human resourcecontrol of the Nokia’s Finland authority to the new Microsoftsubsidiary in Finland (Wash,2014).The human resource of the target remained the same with norestructuring announced during and after the acquisition closure onApril 25 2014. The reason for the avoidance of changes in the humanresource practice in the target company was to maintain the company’soperations without disruptions.
Theacquisition of Nokia Handset & Services Business by Microsoft wasnecessitated by the financial circumstances that Nokia wasexperiencing. The identification of Microsoft as the best acquirerwas informed by the existing business relationship between the twofirms. The acquisition left little changes in the structure of thetwo firms but Microsoft added a new subsidiary in Finland, whileNokia’s CEO joined Microsoft. With the acquisition, Nokia remainsin business with its brands on the market, while Microsoft fullyventures into the competitive global mobile phone market.
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Kamal,N. (2014). NokiaOyj to become Microsoft Mobile Oy, Nokia to retain its suppliers basepost the deal?Retrieved From,<http://www.nokiapoweruser.com/2014/04/19/nokia-oyj-to-become-microsoft-mobile-oy-nokia-to-retain-its-suppliers-base-post-the-deal>July 21, 2014