Did Microsoft Overpay for Nokia?
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Jonathan Yates
Did Microsoft Overpay for Nokia?

Nokia (NYSE: NOK) is up more than 30% today due to the news that Microsoft (NASDAQ: MSFT) will acquire the company’s phone service and patents for $7.2 billion.

In terrible shape, it is difficult to imagine that any other entity would have wanted Nokia.  If one had, surely a deal would have happened by now.  The Microsoft purchase is certainly the best deal for the shareholders of Nokia.

Looking at the numbers for Nokia, it is easy to see why no other company wanted it: not even the Government of Finland would offer assistance.  It is always nice for a business to make money.  Microsoft does this very well with a profit margin of 28.10%.  Nokia does not with a negative profit margin of 17.30%.

Nokia has many other negative margins, too.

The operating margin is a negative 0.20%.  The returns are in negative territory, too: the return on asset is a negative 15.90%, the return on investment is a negative 25.30%, and the return on equity is a negative 59%.

Microsoft has tons of cash to throw behind the operations of Nokia.  That really did not do much good with the Windows Phone.  Nokia is now going for over $5 a share and the mean analyst target price was $3.65.  It is difficult to see how there will be a better result with Microsoft owning Nokia.


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