Following Monday’s $130bn deal between Vodafone and Verizon, yet another blockbuster telecoms transaction has emerged to keep M&A lawyers enthralled, with US firm Skadden, Arps, Slate, Meagher & Flom and Simpson Thacher & Bartlett taking the lead in Microsoft’s $7bn acquisition of Nokia’s Devices & Services business along with a ten-year patent licensing agreement.
Under the terms of the deal, which is expected to complete in the first quarter of 2014, Microsoft will acquire all of Nokia’s Devices & Services arm, including its mobile phones and smart devices business, which generated an estimated €14.9bn, or almost 50%, of Nokia’s net sales for the full year 2012. Around 32,000 staff are expected to transfer to Microsoft.
Nokia’s CTO (Chief Technology Office) organisation and patent portfolio will remain within the Nokia Group. As part of the transaction, Nokia will grant Microsoft a 10-year, non-exclusive licence to its patents and Microsoft will grant Nokia reciprocal rights related to its mapping division, HERE. Microsoft also has the future option of make this licencing agreement permanent.
Of the total purchase price of €5.44bn, €3.79bn relates to the purchase of the Devices & Services business, while €1.65bn relates to the mutual patent agreement and future option.
As part of the negotiations, Microsoft has agreed to provide Nokia with €1.5bn of financing in the form of three €500m tranches of convertible bonds to be issued by Nokia maturing in 5, 6 and 7 years respectively. It is at Nokia’s discretion if it chooses to draw down all or some of these tranches and the financing is not conditional on the transaction closing.
The deal is the second major telecoms mandate for M&A powerhouse Simpson Thacher in the last few days, having also advised Vodafone on US aspects of its deal with Verizon. Veteran corporate lawyer Alan Klein led the team for Microsoft, along with capital markets partner Bill Brentani; Greg Grogan, who specialises in executive compensation and employee benefits; tax partner Gary Mandel; and IP partner Lori Lesser.
Simpson Thacher teamed up with long-standing Microsoft adviser Covington & Burling, which is advising on the crucial IP, regulatory and commercial aspects of the deal. The Covington team was led by Ingrid Rechtin and Evan Cox and pulled in partners from various teams in the US, London and Brussels.
Skadden, meanwhile, was led by corporate partner Ken King, alongside Mike Mies and London partner Danny Tricot.
Partner David Hansen and Of Counsel Jim Brelsford advised on IP, while partners Paul Oosterhuis and Eric Sensenbrenner advised on tax; employment advice came partner Joe Yaffe and London Of Counsel Helena Derbyshire; while partners Frederic Depoortere, Steven Sunshine and Alec Chang provided antitrust advice.
The IP aspects of the deal are particularly significant, demonstrating the huge value the telecoms sector places on patents. In the context of the long-running smartphone wars, the arrangement will allow Nokia to maintain ownership of its patent portfolio while providing Microsoft with access to the intellectual property protected by its patents.
Dr Tim Hargreaves, patent attorney and partner at Marks & Clerk , said: ‘This arrangement allows Nokia to retain its patent portfolio and provides Microsoft with a 10-year licence, with an option to extend it at a later date. That Nokia was not willing to give up its patents – but only to license them – indicates the value it attributes to its own intellectual property.
‘Microsoft has entered this sector relatively late, so gaining access to Nokia’s very established patent portfolio through a licensing deal makes real sense. Similar to Google’s tactic in purchasing Motorola Mobility, this will help Microsoft level the playing field with the rest of the sector. Microsoft also gains the benefit of Nokia’s earlier licensing agreement with Qualcom, which will provide it with access to an even wider pool of patent rights.’