Do Nokia's Cuts Make it a More Appealing Takeover Target? – ValueWalk Premium
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Do Nokia's Cuts Make it a More Appealing Takeover Target?

Do Nokia's Cuts Make it a More Appealing Takeover Target?

On Thursday, Nokia Corporation (ADR) (NYSE:NOK) announced a cut in its earnings forecast for the second time in a year, job reductions reaching as high as 10,000 and a shutdown in production and research sites.

These actions reflect Nokia Chief Executive Officer Stephen Elop's greatest overhaul to date as its stock has dropped to its lowest point since 1996 and a market value below $10 billion, reported Bloomberg.

At the time of this writing, Nokia Corporation (ADR) (NYSE:NOK)'s stock is down 14.87 percent to $2.38.

The news will encompass Finland, Germany and Canada site closings and departures by Nokia executives Niklas Savander, Mary McDowell and Jerri DeVard.

The job cuts, which includes 3,700 in Finland, will represent almost a fifth of the total excluding a joint venture with Siemens AG (ADR) (NYSE:SI). Elop had previously announced more than 10,000 job cuts company wide. In April, he said Nokia would advance its cost-cutting program and would be prepared for additional action.

On Thursday, Elsop said in a conference call via Bloomberg, “This is harder than we thought and we're having to make deeper changes” He added the company does have enough funds to endure the transition and “the scope of today's changes is designed to ensure this remains true.”

Elop took over the reins in 2010 and has been reorganizing the company after seeing sales declines and four consecutive quarters of losses thanks to gains in market share by Apple Inc. (NASDAQ:AAPL)'s iPhone and and Samsung Electronics Co., Ltd.(ADR) (LON:BC94).

Should the declines continue, Nokia faces the risk of going out of business in under two years, according to Alexander Peterc, an Exane BNP Paribas analyst in London. He has an “Underperform” rating on the stock.

Peterc said via Bloomberg, “They are trying to survive. They can't continue like this.”

Adding to Thursday's news was an outlook for a worse than expected second-quarter adjusted operating margin at the devices unit; the loss will be equal to three percent of the first quarter's revenue. The company had projected margins to be “similar to or below” first quarter numbers.

A Possible Takeover Target?

As noted, Apple's iPhone is killing Nokia. Since the company introduced the coveted phone in 2007, Nokia has seen a more than 70 billion euros in market loss. This could heighten the possibility that Nokia could become a takeover target. One analyst believes it will need to stabilize before it is attractive enough for suitors.

Lars Soederfjell, an analyst with Bank of Aaland in Stockholm recently said, “Would you buy into this, with these type of fundamentals?” There's too much uncertainty.”

But this may not be true.

Recently, rumors had been swirling that Nokia had two takeover suitors: Microsoft Corporation (NASDAQ:MSFT) and Samsung. Here at Valuewalk, we reported the not true by Samsung as well as Microsoft's decision to not pursue Nokia.

Why did they decide to not purse the company?

Microsoft Corporation (NASDAQ:MSFT) reviewed the books and didn't like what was under the hood while Samsung appeared to be a good old-fashioned rumor.

While the likelihood of Nokia catching up to Apple not happening, the company does plan to challenge it with the adoption of Microsoft Corp.'s Windows Phone. Last quarter, Nokia shipped more than 2 million Lumia smartphones using this as Apple sold 35.1 million iPhones.

On Thursday, Elop again said Nokia is committed to Windows Phone but its progress has been “slower than we would like.”

Should Nokia's books improve, don't be surprised to see Microsoft coming around due to their commitment by this struggling company.

Rumors usually happen for a reason.


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