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Nokia has offered Siemens of 1.7 billion euro ($2.22 billion) for Siemens' 50% stake in their joint venture called
Nokia Siemens Network. Pending regulatory approval, the deal is expected to close in this year's third quarter. Nokia will own 100% of the business, which is expected to take on a new name.
Before we continue, allow me to address a point: There are now reports suggesting that Nokia's 1.7 billion euro offer to Siemens is actually under what would be fair market value for the NSN business. Nokia is perceived to be taking advantage of its partner. I disagree.
As I pointed out recently, this deal was not a surprise. It was just a matter of time before it (or a deal similar) was announced, even though NSN had grown quickly to become a worthwhile threat to the services offered by
Huawei. Siemens, which has been going through restructuring plans of its own, had made it known on more than one occasion that it wanted out of the partnership.
Because of the growth that NSN experienced over the past couple of years, Siemens anticipated there would be more interest from would-be buyers for its share of the business. The market didn't oblige. Given
Cisco's(CSCO) recent shopping spree, Cisco's name was mentioned as an obligatory candidate. Cisco remained silent. Although
Alcatel-Lucent(ALU) would have brought seamless synergies to NSN, it also would have been a
colossal mistake, given ALU's own cost-cutting plans.
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Complicating matters was the fact that the NSN business is coming off a pretty terrible quarter, during which NSN suffered a surprising 5% drop in first-quarter sales (reported in April), which also declined 30% sequentially.
Now, I'm just speculating here, but it wouldn't surprise me to know that customers developed some anxiety over Siemens' perceived lack of commitment to the NSN business.
Consequently, during these past three months no one stepped up to offer Siemens a better deal. Surprisingly, neither Ericsson nor Huawei showed any interest, either. So without any leverage, Siemens had no choice but to accept Nokia's offer on the basis of Siemens' own miscalculation and public statements.