Nokia Surges, Microsoft Slips on Deal (Update 1)

Updated from 7:38 a.m. with analyst comments and updated price targets.

NEW YORK ( TheStreet) -- Microsoft ( MSFT) shares slipped almost 5% before market open on Tuesday after the software maker announced a $7.2 billion deal to buy Nokia's ( NOK) mobile phone activities.

The deal was not completely out of the blue given Microsoft's desire to claw mobile market share from the likes of Apple's ( AAPL) iPhone and Google ( GOOG) Android devices. Microsoft also has an existing partnership with Nokia.

Shares of the Redmond, Wash.-based firm fell 4.85% to $31.78. Nokia shares, however, surged 42.69% to $5.56.

Under the terms of the deal, which is expected to close in the first quarter of 2014, Microsoft will acquire Nokia's Devices & Services business, license Nokia's patents and license and use Nokia's mapping services, according to a statement released before market open.

In the statement, Microsoft CEO Steve Ballmer described the deal as "a win-win" for employees, shareholders and consumers. "Bringing these great teams together will accelerate Microsoft's share and profits in phones, and strengthen the overall opportunities for both Microsoft and our partners across our entire family of devices and services," he added.

The stakes are high for Microsoft, which is clearly keen to quickly re-invent itself. The company recently announced that Ballmer will retire as CEO within the next 12 months and has vowed to become a successful devices and services company.

"We believe the timing makes sense for Microsoft to purchase Nokia's Devices & Services business in order to fund stronger long-term growth trends," wrote Michael Walkley, an analyst at Canaccord Genuity, in a note released on Tuesday. "We believe Microsoft with its strong balance sheet and increased focus on hardware devices can help accelerate the growing WP8 smartphone momentum."

Canaccord raised its Nokia price target from $3.30 to $5.50.

Nokia also announced that its CEO, Stephen Elop, is stepping aside to become the company's executive vice president of devices and services. Elop, who has already been touted as a possible successor to Ballmer, will transfer to Microsoft at the deal's closing.

The Microsoft/Nokia deal continues the slew of consolidation in the telecom and mobile markets.

On Monday, Verizon Communications ( VZ) confirmed the details of a $130 billion agreement to buy a 45% stake in Verizon Wireless from its U.K partner Vodafone ( VOD).

-- Written by James Rogers in New York.

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