Bloomberg News

Nokia Breakup Worth 52% Gain to Battered Shareholders: Real M&A

June 03, 2011

June 3 (Bloomberg) -- Nokia Oyj, the world’s largest mobile-phone maker, has destroyed so much shareholder value that it may be worth 52 percent more if sold and broken into pieces.

The Espoo, Finland-based company, once worth almost $300 billion, has seen its market value tumble 77 percent to $25.6 billion yesterday since Apple Inc. introduced the iPhone in June 2007. Including net cash, Nokia is cheaper than its 10 biggest rivals based on earnings before interest, taxes, depreciation and amortization, according to data compiled by Bloomberg.

By separating its mobile phone, infrastructure equipment and mapping software businesses and accounting for its patents, Nokia could be worth $39 billion, based on the valuations of comparable companies, the data show. While Nokia cut its revenue forecast at its mobile-phone unit and may earn less this year than any time in almost two decades, sales of its assets could attract companies from Microsoft Corp. to Samsung Electronics Co. and HTC Corp., according to Jefferies Group Inc.

“It’s a classic situation where the parts are worth more than the whole,” said Matt McCormick, a money manager at Cincinnati-based Bahl & Gaynor Inc., which oversees $3.6 billion. “The clock is ticking. Nokia is a good brand, but it’s a tired brand and they need to come up with something. They are going to be a strong candidate for a takeover.”

Laurie Armstrong, a spokeswoman for Nokia, said in an e- mail it won’t comment on “rumor or speculation.” Redmond, Washington-based Microsoft’s Melissa Havel declined to comment.

‘Groundless’

Nam Ki-yung, a spokesman for Suwon, South Korea-based Samsung, said in an e-mailed statement that speculation about an acquisition is “groundless.” Keith Nowak, a spokesman for Taoyuan, Taiwan-based HTC, said the company couldn’t comment.

Nokia this week scrapped its full-year sales and margin forecasts for handsets and services, and said revenue at the unit would fall “substantially” short of its projected range this quarter.

The stock slumped 18 percent to a 13-year low on May 31, exceeding the 14 percent slide on Feb. 11, when Nokia announced a deal to adopt Microsoft’s Windows platform after determining that its own Symbian system couldn’t keep up with Apple’s iOS and Google Inc.’s Android. Nokia’s share of the smartphone market fell to 25 percent in the first quarter of 2011, according to Stamford, Connecticut-based Gartner Inc.

Shares Slump

Nokia fell 4.9 percent to 4.48 euros, cutting the company’s market value to 16.8 billion euros ($24.6 billion). That compares to a market value of $316 billion for Apple and about $35 billion for HTC, which makes handsets using Android and Microsoft operating systems.

The shares had retreated 39 percent this year before today. Including net cash, Nokia is valued at 3.45 times its Ebitda in the past 12 months, data compiled by Bloomberg show. That’s cheaper than the 10 biggest communications equipment providers by market value globally, which trade at a median multiple of 8.7 times. HTC is valued at 15.9 times.

“There have to be some players thinking about Nokia,” said Michael Mahoney, senior managing director and portfolio manager at Falcon Point Capital LLC in San Francisco. “This is the point to look at Nokia very seriously.”

In a breakup, Nokia’s three units may be worth about 21.9 billion euros, based on the sales multiples of its competitors this year, data compiled by Bloomberg show. The breakup value may not include Nokia’s patents, which Tero Kuittinen, an analyst with MKM Partners LP, estimates are worth 5 billion euros. That would bring the total to 26.9 billion euros.

Nokia also has about 6.4 billion euros more in cash than debt, the data show.

Relative Value

Based on analysts’ projections for 40 billion euros in revenue in 2011 and using each unit’s historical rate of growth in the past two years, Nokia’s mobile-phone division may have 26.7 billion euros in sales, data compiled by Bloomberg show.

The business would then be worth 14.4 billion euros based on Libertyville, Illinois-based Motorola Mobility Holdings Inc.’s multiple of 0.54 times revenue this year, the data show.

Nokia’s infrastructure equipment unit, which may have sales of 11.6 billion euros this year, would be valued at 6 billion euros using Paris-based Alcatel-Lucent SA’s 0.52 times valuation. The Navteq maps unit, Nokia’s only division to boost revenue since 2008, may be worth about 1.5 billion euros based on Amsterdam-based TomTom NV’s price of 0.84 times sales.

Samsung and HTC are among the companies that would potentially be interested in Nokia’s handset business for its market share, according to Lee Simpson, an analyst at Jefferies in London who has an “underperform” rating on Nokia’s stock.

Huawei, ZTE

Huawei Technologies Co. and ZTE Corp. may also be interested in buying Nokia’s assets, he said. Both companies are based in Shenzhen. William Plummer, a spokesman for Huawei, declined to comment on “speculation or rumors.” ZTE’s Mitchell Peterson didn’t immediately respond to a request for comment.

Michael Mullaney, who helps manage $9.5 billion at Fiduciary Trust in Boston, said splitting up Nokia won’t change the fact that it’s still a “value trap” because it hasn’t found a way to compete against the iPhone and Android.

Nokia is also unlikely to attract any buyers now because the shares have further to fall, according to American Century Investments’ Michael Liss.

“It’s hard to do a sum-of-the-parts analysis when the floor is falling out and you don’t know where the bottom is,” said Liss, a Kansas City, Missouri-based fund manager at American Century, which oversees $109 billion. “The stock has quite a ways to go before” someone makes an offer, he said.

‘Baseless’

Nokia Chief Executive Stephen Elop said this week speculation that Microsoft agreed to buy his company’s mobile- phone unit for $19 billion is “baseless,” denying a post by the Boy Genius Report website that cited blogger Eldar Murtazin.

Elop has never discussed an acquisition with Microsoft, he said in an interview. “We have a great plan for our future, and we’re focused on executing that plan,” he said. “The rumors are all over the place. There’s no basis for them.”

For Nokia’s shareholders, finding a buyer may be the company’s best option to prevent further losses, according to Michael Holland, who oversees more than $4 billion as chairman of Holland & Co. in New York.

“Over the past few years, when companies have decided to divvy up parts of the company, the market has responded positively and it has been good for shareholders,” he said. “It has to be something people are considering given the nature of the decline in Nokia’s price.”

--With assistance from Dina Bass in Seattle, Peter Burrows in San Francisco and Kati Pohjanpalo in Helsinki. Editors: Michael Tsang, Daniel Hauck.

To contact the reporters on this story: Olga Kharif in Portland, Oregon, at okharif@bloomberg.net; Tara Lachapelle in New York at tlachapelle@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net.

To contact the editors responsible for this story: Daniel Hauck at dhauck1@bloomberg.net; Katherine Snyder at ksnyder@bloomberg.net; Peter Elstrom at pelstrom@bloomberg.net.


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