Nokia - Company Announcement

Nokia to sell Devices & Services business to Microsoft in EUR 5.44 billion all-cash transaction

Nokia Corporation
Stock Exchange Release
September 3, 2013 at 06.00 (CET +1)

- Transaction expected to be significantly accretive to Nokia earnings.

- Nokia continues to develop, and sees significant value in, advanced
technologies, its patent portfolio and Nokia brand. 

- Nokia focusing on NSN, HERE and Advanced Technologies post-transaction. Each
business a leading player in its respective segment. 

- Nokia outlines changes to leadership and Board of Directors.

ESPOO, Finland - Nokia Corporation today announced that it has signed an
agreement to enter into a transaction whereby Nokia will sell substantially all
of its Devices & Services business and licence its patents to Microsoft for EUR
5.44 billion in cash, payable at closing. Nokia expects to book a gain on sale
of approximately EUR 3.2 billion, and expects the transaction to be
significantly accretive to earnings. 

The transaction is expected to close in the first quarter of 2014, subject to
approval by Nokia shareholders, regulatory approvals and other customary
closing conditions. 

Following the transaction, Nokia plans to focus on its three established
businesses, each of which is a leader in enabling mobility in its respective
market segment: NSN, a leader in network infrastructure and services; HERE, a
leader in mapping and location services; and Advanced Technologies, a leader in
technology development and licensing. At closing, this transaction is expected
to strengthen Nokia's financial position and provide a solid basis for future
investment in these three businesses. 

“After a thorough assessment of how to maximize shareholder value, including
consideration of a variety of alternatives, we believe this transaction is the
best path forward for Nokia and its shareholders,” said Risto Siilasmaa,
Chairman of the Nokia Board of Directors and, following today's announcement,
also Nokia interim CEO. 

Deal Terms

Subject to the closing of the transaction, Microsoft will acquire substantially
all of Nokia's Devices & Services business, including the Mobile Phones and
Smart Devices business units as well as an industry-leading design team,
operations including all Nokia Devices & Services production facilities,
Devices & Services-related sales and marketing activities, and related support
functions. At closing, approximately 32,000 people are expected to transfer to
Microsoft, including approximately 4,700 people in Finland. Nokia's CTO (Chief
Technology Office) organization and patent portfolio will remain within the
Nokia Group. The operations that are planned to be transferred to Microsoft
generated an estimated EUR 14.9 billion, or almost 50%, of Nokia's net sales
for the full year 2012. 

As part of the transaction, Nokia will grant Microsoft a 10 year non-exclusive
license to its patents as of the time of the closing, and Microsoft will grant
Nokia reciprocal rights related to HERE services. In addition, Nokia will grant
Microsoft an option to extend this mutual patent agreement to perpetuity. Of
the total purchase price of EUR 5.44 billion, EUR 3.79 billion relates to the
purchase of substantially all of the Devices & Services business, and EUR 1.65
billion relates to the mutual patent agreement and future option. 

Additionally, Microsoft will become a strategic licensee of the HERE platform,
and will separately pay Nokia for a four year license. This revenue stream is
expected to substantially replace the revenue stream HERE is currently
receiving from Nokia's Devices & Services business internally. If the
transaction closes Microsoft is expected to become one of the top three
customers of HERE. 

Microsoft has agreed to make immediately available to Nokia EUR 1.5 billion of
financing in the form of three EUR 500 million 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. The
financing is not conditional on the transaction closing. If the transaction
closes, any outstanding bonds will be redeemed and netted against the deal
proceeds by the amount of principal and accrued interest. 

The following are the key terms of the three tranches of bonds Nokia may choose
to issue: 

- The first tranche matures in 5 years and has a 1.125% per annum coupon
payable semi-annually with an initial conversion price of EUR 3.9338. 

- The second tranche matures in 6 years and has a 2.5% per annum coupon payable
semi-annually with an initial conversion price of EUR 4.0851. 

- The third tranche matures in 7 years and has a 3.625% per annum coupon
payable semi-annually with an initial conversion price of EUR 4.2364. 

The Board of Directors of Nokia will separately assess whether to draw down
some or all of this financing. If Nokia would decide to utilize this financing
option, the earliest that Microsoft could convert any of these bonds to shares
is two years from draw down. 

Microsoft has agreed to a 10 year license arrangement with Nokia to use the
Nokia brand on current Mobile Phones products. Nokia will continue to own and
maintain the Nokia brand.  Under the terms of the transaction, Microsoft has
agreed to a 10 year license arrangement with Nokia to use the Nokia brand on
current and subsequently developed products based on the Series 30 and Series
40 operating systems.  Upon the closing of the transaction, Nokia would be
restricted from licensing the Nokia brand for use in connection with mobile
device sales for 30 months and from using the Nokia brand on Nokia's own mobile
devices until December 31, 2015. 

The transaction is subject to potential purchase price adjustments, protecting
both Nokia and Microsoft, and a USD 750 million termination fee payable by
Microsoft to Nokia in the event that the transaction fails to receive necessary
regulatory clearances. 

Building Nokia's next chapter

Following the transaction, Nokia plans to focus on its three established
businesses, each of which is a leader in enabling mobility in its respective
market segment: NSN, a leader in network infrastructure and services; HERE, a
leader in mapping and location services; and Advanced Technologies, a leader in
technology development and licensing. 

Nokia will retain its headquarters in Finland. Excluding the approximately
32,000 people planned to transfer to Microsoft, Nokia would have employed
approximately 56,000 people at the end of the second quarter 2013. 

“Today is an important moment of change and reinvention for Nokia and its
employees,” said Nokia Chairman and interim CEO Mr. Siilasmaa. “With our strong
corporate identity, leading assets and talent, and from a position of renewed
financial strength, we will build Nokia's next chapter.” 

NSN, a wholly-owned business of Nokia since August 2013, is a leader in mobile
broadband, and is focused on operating at the forefront of each generation of
mobile technology, including pushing the boundaries of connecting people
through LTE and future technologies. Nokia continues to manage NSN as a strong,
independent entity. 

HERE will continue to focus on growing its industry-leading position through a
broad location offering across mobile devices, connected devices, enterprise
solutions and the automotive environment. HERE will continue to execute its
strategy to become the leading independent location cloud platform company,
offering mapping and location services across different screens and operating
systems. 

Our Advanced Technologies business will build on several of Nokia's current CTO
and Intellectual Property Rights activities. Advanced Technologies will explore
new business opportunities through advanced research, development and concept
products in areas such as connectivity, sensing and material technologies, as
well as web and cloud technologies. At the same time, Advanced Technologies
plans to continue to build Nokia's patent portfolio from this innovation and
targets to expand its industry-leading technology licensing program, spanning
technologies that enable mobility today and tomorrow. 

“Following this transaction, Nokia's financial situation is expected to be
significantly stronger and its earnings profile significantly improved,” said
Nokia CFO and interim President Timo Ihamuotila. “We will have three
well-positioned businesses, each a leader in its market. Overall, we will
continue to focus on managing and maximizing the assets of Nokia Group
prudently and pragmatically to create value for Nokia shareholders.” 

Historical pro forma information and strategic evaluation

This transaction is expected to be significantly accretive to Nokia earnings.
In the first half 2013, Nokia Group net sales were EUR 11.5 billion and
non-IFRS operating margin was 4.2%. On a pro forma basis assuming this
transaction would have closed, Nokia Group net sales would have been EUR 6.3
billion and non-IFRS operating margin would have been 12.1% in the first half
2013. 



PREVIOUSLY PUBLISHED AND PRO FORMA INFORMATION 
--------------------------------------------------------------------------------
----------- 
               Nokia            Continuing             Nokia              
Continuing 
               GROUP            Operations             GROUP              
Operations 
           as previously         pro forma         as previously           pro
forma 
             published                               published 
--------------------------------------------------------------------------------
---------- 
        Non-IFRS  Reported  Non-IFRS  Reported   Non-IFRS   Reported   Non-IFRS
  Reported 
--------------------------------------------------------------------------------
---------- 
        1-6 2013  1-6 2013  1-6 2013  1-6 2013  1-12 2012  1-12 2012  1-12 2012
 1-12 2012 
--------------------------------------------------------------------------------
---------- 
Net         11.5      11.5       6.3       6.2       30.3       30.3       15.3
      15.3 
 sales 
(EUR 
 billi 
ons) 
--------------------------------------------------------------------------------
---------- 
Operat       4.2      -2.3      12.1       0.8        0.4       -7.6        8.5
      -4.0 
ing 
 profi 
t (%) 
--------------------------------------------------------------------------------
---------- 

1) The pro forma net sales for continuing operations have been calculated by
deducting the Mobile Phones and Smart Devices business units net sales and
spare parts net sales from the Nokia Group net sales. 

2) Additionally, continuing operations pro forma net sales have been adjusted
to reflect the HERE platform license agreement under which Microsoft will
separately pay Nokia, as if the transaction had closed on January 1, 2012. 

3) The pro forma operating profit % has been calculated by deducting the Mobile
Phones and Smart Devices business units costs from the Nokia group costs as
well as by making certain cost adjustments between the transferring business
and continuing operations to reflect the scope of the transaction. 

4) The above figures reflect the retrospective application of IAS 19R, Employee
benefits, as published in our 2013 interim reports. 



The transaction is also expected to significantly strengthen Nokia's financial
position and Nokia targets to return to being an investment grade company. If
this transaction as well as Nokia's acquisition of 50% of NSN would have closed
before the end of the second quarter 2013, Nokia would have ended the quarter
with gross cash of EUR 14.9 billion and net cash of EUR 7.8 billion, excluding
transaction related expenses and taxes. Assuming repayment of financing
facilities related to the NSN acquisition as well as Nokia's debt facilities of
EUR 1.8 billion maturing before the end of the first quarter 2014, Nokia would
have ended the second quarter 2013 with gross cash of EUR 11.4 billion and net
cash of EUR 7.8 billion, excluding transaction related expenses and taxes. This
compares to reported gross cash of EUR 9.5 billion and net cash of EUR 4.1
billion at the end of the second quarter 2013. 

Nokia's Board of Directors is conducting a strategy evaluation for Nokia Group
between signing and closing of the transaction. This evaluation will comprise
of evaluations of strategies for each of Nokia's three businesses and possible
synergies between them, as well as an evaluation of the optimal corporate and
capital structure for Nokia after the closing of the transaction. After this
evaluation is complete, deemed excess capital is planned to be distributed to
shareholders. 

Nokia expects to book a gain on sale of approximately EUR 3.2 billion from the
transaction, excluding any potential tax implications, gains or losses related
to currency translation differences triggered by the transaction. In connection
with the transaction, Nokia will be required to evaluate whether the impact of
the sale on future cash flows or operating results requires changes in the
carrying values of any of its remaining assets or liabilities. This evaluation
will include, among other things, a review of existing goodwill balances for
impairment and the potential recoverability of deferred tax assets currently
subject to valuation allowance.  Additional assets and liabilities may require
adjustment upon completion of our review. 

Nokia Leadership

Nokia today announced changes to its leadership as a result of the proposed
transaction. These changes, which are effective immediately, are designed to
provide an appropriate corporate governance structure during the interim period
following the announcement of this transaction. 

The Nokia Leadership Team will continue to consist of the current members, but
with changes in positions and reporting lines as outlined below. 

Risto Siilasmaa will assume an interim CEO role for Nokia while continuing to
serve in his role as Chairman of the Nokia Board of Directors. As part of his
interim CEO role, Mr. Siilasmaa will, among other tasks, oversee strategy and
have four direct reports: Michael Halbherr, Executive Vice President, HERE;
Stephen Elop, Executive Vice President, Devices & Services; Timo Ihamuotila,
Nokia CFO and interim President; and Jesper Ovesen, Executive Chairman of the
NSN Board of Directors. 

To avoid the perception of any potential conflict of interest between now and
the pending closure of the transaction, Stephen Elop will step aside as
President and CEO of Nokia Corporation, resign from the Board of Directors, and
will become Executive Vice President, Devices & Services. The following Nokia
Leadership Team members will report to Mr. Elop: Marko Ahtisaari, Executive
Vice President, Design; Jo Harlow, Executive Vice President, Smart Devices;
Juha Putkiranta, Executive Vice President, Operations; Timo Toikkanen,
Executive Vice President, Mobile Phones; and Chris Weber, Executive Vice
President, Sales and Marketing. 

Timo Ihamuotila becomes President of Nokia for the interim period while also
continuing to serve as CFO. Mr. Ihamuotila will assume the responsibility of
chairing the Nokia Leadership Team. The following Nokia Leadership Team members
will report to Mr. Ihamuotila: Louise Pentland, Executive Vice President and
Chief Legal Officer; Henry Tirri, Executive Vice President and Chief Technology
Officer; Juha Äkräs, Executive Vice President, Human Resources; and Kai
Öistämö, Executive Vice President, Corporate Development. 

We expect that Mr. Elop, Ms. Harlow, Mr. Putkiranta, Mr. Toikkanen, and Mr.
Weber would transfer to Microsoft at the anticipated closing. 

Mr. Ahtisaari has decided to again pursue entrepreneurial opportunities. He
will step down from the Nokia Leadership Team and his position as Executive
Vice President, Design, effective as from November 1, 2013. He will continue to
work on activities related to the transaction through November 30, 2013.
Effective November 1, 2013 Stefan Pannenbecker will start leading Design,
reporting to Mr. Elop. 

This announcement does not change the current leadership for Nokia Solutions
and Networks. Rajeev Suri will continue to serve as CEO, NSN, reporting to
NSN's Board which continues to be chaired by Jesper Ovesen who continues to
serve as NSN's Executive Chairman and reports to Mr. Siilasmaa. 

Nokia Board of Directors

To avoid the perception of any potential conflict of interest between now and
the pending closure of the transaction, Stephen Elop will resign from the Nokia
Board of Directors effective today. The Nokia Board currently consists of the
following nine members: Risto Siilasmaa, Chairman; Jouko Karvinen, Vice
Chairman; Bruce Brown; Elizabeth Doherty; Henning Kagermann; Helge Lund; Mårten
Mickos; Elizabeth Nelson and Kari Stadigh. As a result of Mr. Siilasmaa
assuming the interim CEO role, and in line with good corporate governance, Mr.
Siilasmaa will no longer be a member and Chairman of the Corporate Governance &
Nomination Committee. The Corporate Governance and Nomination Committee
currently consists of the following three members:  Mr. Kagermann, Mr. Karvinen
and Mr. Lund. The Board elected Mr. Karvinen as the Chairman of the Corporate
Governance & Nomination Committee. The composition of the Personnel Committee
and the Audit Committee remain unchanged. 

Extraordinary shareholders meeting and Nokia Board recommendation

Under the terms of the agreement, the closing of the transaction will be
subject to approval by Nokia shareholders. Nokia plans to hold an Extraordinary
General Meeting on November 19, 2013 and to publish a notice of the meeting and
make available more information on the transaction and its background later
this month. Having thoroughly analysed the transaction and other alternatives
available, the Board of Directors decided to enter into the transaction and
recommends that Nokia shareholders vote to confirm and approve the sale of
substantially all of the Devices & Services business to Microsoft at the
Extraordinary General Meeting. 

Investor Conference Call

Today, Nokia executives will hold an investor call at 3.00pm Finnish time. A
live webcast of the conference call will be available at
http://investors.nokia.com. Media representatives can view the webcast or
listen in at +1 706 634 5012, conference ID 45390451. 

Press Conference

Nokia will host a press conference today on Tuesday at 11.00 a.m. EET in
Dipoli, Espoo (Otakaari 24). Registration will start at 10 a.m., and the doors
will open at 10.40 a.m. Due to space constraints, only media who show valid
press credentials at the registration will be admitted. Media are encouraged to
watch a live webcast of the press conference via: http://press.nokia.com. 

Media Enquiries

Nokia

Communications

Tel. +358 7180 34900

Email: press.services@nokia.com

www.nokia.com/

FORWARD-LOOKING STATEMENTS

It should be noted that Nokia and its business are exposed to various risks and
uncertainties and certain statements herein that are not historical facts are
forward-looking statements, including, without limitation, those regarding: A)
the planned sale by Nokia of substantially all of Nokia's Devices & Services
business, including Smart Devices and Mobile Phones  (referred to below as"Sale of the D&S Business") pursuant to a purchase agreement between Nokia and
Microsoft (referred to below as “Agreement”); B) the closing of the Sale of the
D&S Business; C) obtaining the shareholder approval for the Sale of the D&S
Business; D) receiving timely, or at all, necessary regulatory approvals for
the Sale of the D&S Business; E) expectations, plans or benefits related to or
caused by the Sale of the D&S Business; F) expectations, plans or benefits
related to Nokia's strategies, including plans for Nokia with respect to its
continuing business areas that will not be divested in connection with the Sale
of the D&S Business; G) expectations, plans or benefits related to changes in
leadership and operational structure; H) expectations and targets regarding our
operational priorities, financial performance or position, results of
operations and use of proceeds from the Sale of the D&S Business; and I)
statements preceded by "believe,""expect,""anticipate,""foresee," “sees,”"target,""estimate,""designed,""aim", "plans,""intends," “focus,” "will" or
similar expressions. These statements are based on management's best
assumptions and beliefs in light of the information currently available to it.
Because they involve risks and uncertainties, actual results may differ
materially from the results that we currently expect. Factors, including risks
and uncertainties that could cause these differences include, but are not
limited to: 1) the inability to close the Sale of the D&S Business in a timely
manner, or at all, for instance due to the inability or delays in obtaining the
shareholder approval or necessary regulatory approvals for the Sale of the D&S
Business, or the occurrence of any event, change or other circumstance that
could give rise to the termination of the Agreement; 2) the potential adverse
effect on the sales of our mobile devices, business relationships, operating
results and business generally  resulting from the announcement of the Sale of
the D&S Business or from the terms that we have agreed for the Sale of the D&S
Business; 3) any negative effect caused by us entering into the Sale of the D&S
Business, as we may forego other competitive alternatives for strategies or
partnerships that would benefit our Devices & Services business and if the Sale
of the D&S Business is not closed, we may have limited options to continue the
Devices & Services  business or enter into another transaction on terms
favorable to us, or at all; 4) our ability to effectively and smoothly
implement planned changes to our leadership and operational structure or
maintain an efficient interim governance structure and preserve or hire key
personnel; 5) any negative effect from the implementation of the Sale of the
D&S Business, which will require significant time, attention and resources of
our senior management and others within the company potentially diverting their
attention from other aspects of our business; 6) disruption and dissatisfaction
among employees caused by the plans and implementation of the Sale of the D&S
Business reducing focus and productivity in areas of our business; 7) the
amount of the costs, fees, expenses and charges related to or triggered by the
Sale of the D&S Business; 8) any impairments or charges to carrying values of
assets or liabilities related to or triggered by the Sale of the D&S Business;
9) potential adverse effect on our business, properties or operations caused by
us implementing the Sale of the D&S Business; 10) the initiation or outcome of
any legal proceedings, regulatory proceedings or enforcement matters that may
be instituted against us relating to the Sale of the D&S Business; and, as well
as the risk factors specified on pages 12-47 of Nokia's annual report on Form
20-F for the year ended December 31, 2012 under Item 3D. "Risk Factors." and
risks outlined in our most recent interim report. Other unknown or
unpredictable factors or underlying assumptions subsequently proving to be
incorrect could cause actual results to differ materially from those in the
forward-looking statements. Nokia does not undertake any obligation to publicly
update or revise forward-looking statements, whether as a result of new
information, future events or otherwise, except to the extent legally required.