Microsoft reaches $7.2B deal for Nokia handset business

Matt Krantz | USA TODAY

Microsoft late Monday announced it is buying Nokia's smartphone and cellular handset business in a deal worth $7.2 billion.

The deal sent Finnish firm Nokia's Helsinki-listed shares zooming 31% in afternoon trading Tuesday and earlier were up close to 50%, a move reported by Bloomberg as a record advance. Microsoft shares were down about 5%.

As part of the deal, Microsoft will own the company which has been a leader in creating the Lumia line of smartphones that run Microsoft's Windows Phone operating system. Microsoft is paying $5 billion to buy Nokia's Devices & Services unit and an additional $2.2 billion to license Nokia's patents.

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The deal formally puts the two companies together after collaborating closely since Feb. 2011 to create handsets that compete with those from Apple and Samsung. The companies have made in-roads in many parts of the world, including Europe, but are still facing headwinds in the U.S. Windows Phone has already surpassed BlackBerry as the third largest smartphone platform according to some analysts.

The move is one of the boldest yet by CEO Steve Ballmer, who stated last month he plans to retire in 12 months. By buying Nokia's handset business, Microsoft is showing it's committed to turning itself into more of a devices company than a software company. The deal's total value makes it the second largest ever done by Microsoft, just behind the $9.3 billion buy of Internet phone service Skype in May 2011, says S&P Capital IQ.

"Nokia and Microsoft have always dreamed big," said Ballmer and Nokia chief Stephen Elop in an "open letter" blog post.

"We dreamed of putting a computer on every desk, and a mobile phone in every pocket, and we've come a long way toward realizing those dreams. Today marks a moment of reinvention."

Elop, a former Microsoft executive who took the helm of Nokia, will become Nokia Executive Vice President of Devices & Services.

The deal is expected to close in the first quarter of 2014 subject to shareholder and regulatory approval.