Nokia shares surged on Monday after it announced plans to buy out partner Siemans AG's share of their valuable network equipment joint venture, betting on the technology to run 4G networks after it stumbled as a maker of smartphones.
Loss-making Nokia (Helsinki, Finland) gains full control of the profitable venture Nokia Siemens Networks (NSN) for $2.2 billion, a cheaper than-expected price, analysts said, although they also noted the acquisition would put pressure on Nokia's balance sheet.
"With this transaction, Nokia buys itself a future, whatever happens in smartphones and feature phones," Bernstein analyst Pierre Ferragu wrote in a note to clients.
Nokia shares were up nearly 8 percent to 3.07 euros by 0340 EDT (0740 GMT). JP Morgan raised its rating on the shares to overweight from underweight, lifting its target price to 3.6 euros from 2.0 euros.
Nokia fell behind rivals Apple Inc (Cupertino, CA, USA) and Samsung Electronics Co Ltd (Seoul, South Korea) in the smartphone race, making the controversial decision to switch to Microsoft's untried Windows software in 2011.
In contrast to Nokia's phone business, NSN turned profitable in the second quarter of 2012 after slashing costs and as its focus on fourth-generation Long Term Evolution (LTE) networks began to pay off.
NSN's adjusted earnings before interest and taxes (EBIT) amounted to 196 million euros in the first quarter of this year.
Nokia will pay 1.2 billion euros in cash and the other 0.5 billion euros in the form of a secured loan from Siemens (Munich, Germany) that will be repaid later.
"Nokia Siemens Networks has established a clear leadership position in LTE, which provides an attractive growth opportunity," Nokia Chief Executive Stephen Elop said in a statement.
Elop said NSN would continue to run as an independent entity and did not rule out listing or selling it.
"As for the future of NSN, as we've said consistently there is a range of options that could exist for NSN over time. All of those options remain open," he told a conference call.
Nokia and Siemens formed the 50-50 joint venture in April 2007 and the agreement lapsed in April this year. Nokia had said it had wanted NSN to be sold or listed and many analysts had believed it might be sold.
Nokia said it expected to close the transaction, subject to regulatory approval, during the third quarter of this year.
Nokia said it estimated its net cash position was 3.7-4.2 billion euros, adding that if the NSN deal had closed in the second quarter, its net cash position would have been 2.0-2.5 billion euros. ($1 = 0.7693 euros)
(Editing by Miral Fahmy, Jeremy Laurence, Edwina Gibbs and Peter Graff)