According to a recent Bloomberg report, Nokia Siemens Networks (NSN), a 50-50 joint venture between Nokia Corp. (NOK) and Siemens AG (SI), is in the process to restructure its proposed acquisition of the wireless infrastructure assets of Motorola Solutions Inc. (MSI). In July 2010, NSN entered into an agreement to purchase all of GSM, CDMA, and WCDMA technologies as well as next-generation (4G) WiMAX and LTE technologies of Motorola for a total consideration of $1.2 billion in cash. The deal was expected to close by the end of 2010 and was viewed as a major thrust for the struggling NSN to boost its business footprint in the lucrative markets of the U.S., Japan, and the Asia-Pacific region.
As of now, NSN received regulatory approval from the U.S., European Union, Brazil, Japan, Russia, South Africa, Taiwan, and Turkey. However, China is yet to give clearance for this merger. In January 2011, Huawei Technologies of China sued Motorola Solutions, Nokia, and Siemens for delaying the sale of wireless network assets of Motorola to NSN. As per Huawei, it had a 10-year agreement with Motorola for which the later sold re-branded Huawei GSM equipments since 2000. However, Huawei claimed that the agreement does not allow Motorola Solutions to sell Huawei’s patented GSM technologies to any third party.
In February 2011, Huawei won a major legal battle when a U.S. federal court barred Motorola from disclosing any GSM technology to NSN that was patented by Huawei. NSN and Huawei are close competitors throughout the world. However, the judge denied canceling the entire acquisition deal as demanded by Huawei.
The Bloomberg report further stated that NSN is at present restructuring the proposed acquisition deal excluding the GSM network technologies of Motorola. Consequently the financial consideration will be reduced and resettled. In late December 2010, NSN was hopeful that it will get the Chinese regulatory clearance by the first quarter of 2011. However, recently, the Anti-Monopoly Bureau of the Ministry of Commerce in China had extended its review period by up to an additional 60 days.
We believe quick completion of the proposed acquisition deal is of utmost necessity for NSN even if that mean doing away with the GSM networks of Motorola. NSN itself is a major force in GSM technology but it lacked severely in the CDMA, WCDMA and 4G LTE networks. This was the primary reason that unlike LM Ericsson AB (ERIC), the company failed to penetrate into the North American markets.
Globally, NSN currently holds second position with a market share of 21.4%. Huawei is breathing down its neck with a market share of 17.9%. After acquiring Motorola wireless infrastructure assets, NSN’s position will be more consolidated. We believe NSN will be way ahead of other wireless network vendors except Ericsson, the undisputed market leader with a 36.9% global share.
Acquisition of Motorola’s wireless network infrastructure businesses is expected to generate substantial revenue to NSN from CDMA networks (North America and Japan), which account for nearly 50% of the $82 billion global wireless network infrastructure business. Motorola has a strong CDMA business tie-up with Verizon Wireless (VZ) and WiMAX contracts with Sprint Nextel Corp. (S). The sole LTE contract of Motorola is with KDDI corp. of Japan.
ERICSSON LM ADR (ERIC): Free Stock Analysis Report
MOTOROLA SOLUTN (MSI): Free Stock Analysis Report
NOKIA CP-ADR A (NOK): Free Stock Analysis Report
SPRINT NEXTEL (S): Free Stock Analysis Report
SIEMENS AG-ADR (SI): Free Stock Analysis Report
VERIZON COMM (VZ): Free Stock Analysis Report
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