9/24/2019 Case Study of a Failed M&A— Introduction to Microsoft’s Acquisition of Nokia | International Hub

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Case Study Of A Failed M&A—

Introduction To Microsoft’s
Acquisition Of Nokia
By Felicity Cribbs and Dillon Papenfuss October 8, 2018

On September 3, 2013, Microsoft announced that it would acquire Nokia’s

mobile phone division for $7.2 billion. Through a series of missteps, many
of them cultural mismanagement, Microsoft informed the public in May
2016, of its intention to write off most of the $7.2 billion it paid for
Nokia and agreed to sell the mobile devices unit to HMD Global and
Foxconn Technology for just $350 million. This series uses the Mergers
and Acquisitions Synergies Framework to explore the cultural issues
that lead to Microsoft’s failed merger with a highly regarded mobile
phone company.
Introduction
During the 1990’s and early 2000’s, one company dominated the mobile industry: Nokia. Established in 1871, the Finnish-born
company gained a worldwide reputation for producing reliable, standard mobile phones that were internet-enabled and programmed
with an array of multimedia features. Eventually, competition in the mobile phone sector rose in 2007 when Apple introduced the
iPhone, and Nokia soon found its market share rapidly decreasing.1 Initially, Nokia predicted the smart phone craze would die out
and consumers would return to standard mobile phones, but smart phones proved to be more than a passing trend. Nokia’s
management failed to understand the wave of radical innovation that revolutionized the mobile industry—as Samsung and Apple
produced and sold touch-screen phones. Nokia’s failure to react to the changing competitive climate is reflected in the precipitous
fall in its share price from the iPhone’s introduction to Nokia’s own smartphone introduction: its market share faltered, losing almost
10 percent.2

On 10 September 2010, Nokia parted ways with its CEO (Kallasvuo) and hired Microsoft executive Stephen Elop. Hiring Elop was a
significant move for a few reasons: he was the first non-Finn CEO in company history, and analysts predicted that hiring Elop would
lead to closer cooperation between Microsoft and Nokia3. Elop pledged to “reverse the company’s market share losses by
‘regaining [Nokia’s] smartphone leadership, reinforcing [Nokia’s] mobile device platform and realizing [Nokia’s] investments in the
future.’”4
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True to analysts’ expectations, it did not take long for a partnership to arise between Microsoft and Nokia. On 11 February 2011
Nokia announced a “broad strategic partnership” with Microsoft. The partnership made a lot of strategic sense considering
Microsoft’s dominance in software and Nokia’s in hardware – namely the production of mobile phones. The partnership was
heralded by the media: “The deal makes Microsoft a key contender and gets Nokia back to the forefront of the smartphone
revolution.”5 Despite optimism from analysts, the announced partnership was met with met displeasure among Finns, and Nokia’s
share price tumbled 10 percent.6

In 2012 Nokia released its new smartphone, the Lumia, which ran on Window’s newly released OS – Windows 8. Initially, the
release of the Lumia led to increasing, albeit tepid, sales for Nokia. Two years after announcing the partnership, Nokia was still
losing market share to Apple and Samsung. Microsoft’s performance during the period didn’t fare much better than Nokia’s.
Microsoft’s poor performance was primarily caused by vehement resistance of Windows 8 from PC users, who detested its
optimization for mobile devices. With both companies struggling to keep up in the fast-paced smartphone market, they were left to
search for a more drastic solution than mere partnership.

On 3 September 2013, Microsoft CEO Steve Ballmer announced that Microsoft would acquire Nokia’s mobile phone division for
$7.2 billion.7 Microsoft had been looking for a way to enter the mobile phone industry to better compete with Apple and Google. In
acquiring Nokia’s services and devices unit, Microsoft took control of Nokia’s mobile phones and smart devices, design team,
licensing agreements, and approximately 32,000 new employees. Given Microsoft’s prowess in software and Nokia’s in devices, the
acquisition was anticipated to be a smooth, successful transaction. Furthermore, both CEOs (Ballmer and Elop) acknowledged the
acquisition as something that would build upon the existing Nokia-Microsoft partnership.8 In a press release in 2013, Elop told
reporters,

“‘Building on our successful partnership, we can now bring together the best of Microsoft’s
software engineering with the best of Nokia’s product engineering, award-winning design, and
global sales, marketing, and manufacturing. With this combination of talented people, we have
the opportunity to accelerate the current momentum and cutting-edge innovation of both our
smart devices and mobile phone products.’”9

February 2014 marked the beginning of the newly formed Microsoft Mobile (a subsidiary of Microsoft). Later, in October 2014,
Microsoft Mobile announced that Microsoft Lumia would replace the iconic Nokia on the smartphones.10

Despite Microsoft Mobile’s best efforts, the union proved to be tenuous at best, with job cuts of 12,500 and 7,800 occurring in July
201411 and July 201512 respectively. Finally, on 18 May 2016, Microsoft informed the public of its intention to write off most of the
$7.2 billion Nokia deal and an agreement to sell the mobile devices unit to HMD Global and Foxconn Technology for just $350
million.13 The company also announced that it would no longer produce new phones. What had seemed to be a promising venture
had feebly wilted.

Differences in national culture severely affected Microsoft’s deal with Nokia. The M&A Synergies Framework identifies the relevant
cultural aspects of the Nokia-Microsoft merger and offers insight into what caused the acquisition to fail. These insights point us to
things to consider when preparing for cross-border deals between American and Finnish companies.

M&A Synergies Framework

The M&A Synergies Framework was created to analyze culture’s effect on cross-border deal making. Differences in national culture
can lead to increased creativity within companies; however, they can also incite bitter conflict. The framework directs dealmakers to
better understand how culture can affect their ability to realize synergies, which are the primary rationale for deal making. The
framework elaborates on the following cultural elements: communication, behavior, management, environment, and accounting and
finance. The M&A Synergies Framework is discussed fully in another series that can be found on InternationalHub.org. This case
studies uses the Framework as the basis to understand the cultural reasons why Microsoft’s acquisition of Nokia was not
successful.

Next: M&A Synergies Framework—The Role of Communication in the Microsoft-Nokia Merger

1. Pattak, D. C. (2016). An investigation into Nokia-Microsoft Strategic Alliance: Joining forces in the global Smartphone
Industry. International Journal of Scientific & Engineering Research , 7(8). 
2. Lee, D. (2013, September 03). Nokia: The rise and fall of a mobile giant. Retrieved from
http://www.bbc.com/news/technology-23947212 

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3. O’Brien, K. J. (2010, September 10). Nokia Chooses a Microsoft Officer as Its New Chief Executive. The New York Times. 
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Retrieved September 18, 2017, from http://www.nytimes.com/2010/09/11/technology/11nokia.html?mcubz=0 TEAM  
4. Express News. (2011, February 11). Nokia to adopt Microsoft technology. Retrieved from
https://www.express.co.uk/news/world/228497/Nokia-to-adopt-Microsoft-technology 
5. Wearden, G. (2011, February 11). Nokia and Microsoft sign strategic tie-up. The Guardian . Retrieved September 18, 2017,
from https://www.theguardian.com/business/2011/feb/11/nokia-microsoft-sign-strategic-tieup 
6. Wearden, G. (2011, February 11). Nokia and Microsoft sign strategic tie-up. The Guardian . Retrieved September 18, 2017,
from https://www.theguardian.com/business/2011/feb/11/nokia-microsoft-sign-strategic-tieup 
7. Goldman, D. (2013, September 3). Microsoft to buy Nokia’s phone business for $7.2 billion. CNN. Retrieved September 18,
2017, from http://money.cnn.com/2013/09/03/technology/mobile/microsoft-nokia/index.html 
8. Microsoft News Center. (2014, October 16). Microsoft to acquire Nokia’s devices & services business, license Nokia’s
patents and mapping services. Retrieved from https://news.microsoft.com/2013/09/03/microsoft-to-acquire-nokias-devices-
services-business-license-nokias-patents-and-mapping-services/#McupgecLxj1Eyi8M.97 
9. Microsoft News Center. (2014, October 16). Microsoft to acquire Nokia’s devices & services business, license Nokia’s
patents and mapping services. Retrieved from https://news.microsoft.com/2013/09/03/microsoft-to-acquire-nokias-devices-
services-business-license-nokias-patents-and-mapping-services/#McupgecLxj1Eyi8M.97 
10. Warren, T. (2014, October 21). Microsoft Lumia will replace the Nokia brand. Retrieved September 20, 2017, from
https://www.theverge.com/2014/10/21/7026427/microsoft-lumia-nokia-brand-replacement 
11. McIntyre, M. G. (2014, July 21). How Microsoft mangled a layoff memo. Retrieved September 18, 2017, from
https://www.cnbc.com/2014/07/21/how-microsoft-mangled-a-layoff-memocommentary.html 
12. Kumar, D. K., & Roy, A. (July 8). Microsoft hangs up on Nokia business, to cut 7,800 jobs. Retrieved September 20, 2017,
from http://www.reuters.com/article/us-microsoft-redundancies/microsoft-hangs-up-on-nokia-business-to-cut-7800-jobs-
idUSKCN0PI0GL20150708 
13. Deutsche Welle. (2016, May 25). Microsoft to end smartphone business? | Business | DW | 25.05.2016. Retrieved from
http://www.dw.com/en/microsoft-to-end-smartphone-business/a-19282541 

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