Boston, MA 07/08/2013 (wallstreetpr) – Nokia Corporation (ADR) (NYSE:NOK) announced the acquisition of a 50% stake of Siemens AG’s (ADR) (NYSE:SI) Nokia Siemens Networks, or NSN, a joint venture, for a total value of 1.7 billion euros.This acquisition is expected to be completed by the end of this quarter. After the acquisition, Siemens AG shall become a wholly owned subsidiary of Nokia.
The company has been recently resorting to laying off its employees in order to cut its expenses. The investors were eying the company’s cash balance and the cash burn rate. At the end of the first quarter, the company had a cash balance of 4.5 billion euros. Nokia has 1.2 billion euros of secured bank financing, while it shall raise the remaining 500 million euros from Siemens AG.
Standard & Poor has downgraded the debt rating of Nokia Oyj (NOK1V) by cutting it one step closerto junk status. The downgrade was made after the company announced the acquisition of Siemens AG.Standard & Poor downgraded the stock from BB- to B+, with BB- being 4 points below investment grade. S&P stated that the company’s cash balance will fall to 1.3 billion euros by the year end. The rating on the short-term corporate credit rating is expected to remain stable, while the senior unsecured debt’s rating has been lowered from BB- to B+.
Nokia is not planning to integrate Nokia Siemens and may decide to work on to seek partners.The company is sitting on debt of 5.27 billion euros and is the second largest maker of mobile phones according to Bloomberg. The company intends to get into a business where it has little presence and through the acquisition, Nokia will be able to take advantage of the stable cash flow of Siemens AG.
The acquisition is seen as a good strategic fit but will put the company’s balance sheet under pressure.
