M&A Alert - July 23, 2010
Nokia Acquires Wireless Network Assets of Motorola
Transaction Overview
On July 19 2010 Nokia Siemens announced it would acquire Motorola’s wireless network assets for $1.2 billion in cash.
Target Description
Motorola’s wireless infrastructure provides GSM, CDMA, WCDMA, WiMAX and LTE for various carriers. They currently have more than 50 operators including Sprint, Verizon, Vodafone and China Mobile. The deal excludes Motorola’s iDEN equipment division which powers their iDEN line of cellphones with two-way calling, packet transmission, paging and cellular transmission technology. Competitors in the wireless infrastructure arena include Ericsson, Alcatel-Lucent, Huawei and Nokia Siemens. Motorola has long been planning to breakup their operations into three categories: wireless network infrastructure, cell phone manufacturing and police radio manufacturing. After this acquisition, the spin-off will leave Motorola Mobility as a cell phone and set-top box manufacturer and Motorola Solutions focused on governmental and commercial equipment such as police radios.
Buyer Description
Nokia Siemens is a joint venture between Nokia’s Network Business Group and Siemens’s COM division. Focused on network infrastructure, they will become the third largest vendor in the U.S., largest vendor in Japan and second largest globally after the acquisition. Before the acquisition, Nokia Siemens held a market share of about 11% of the wireless infrastructure market, compared to the 15% held by Ericsson, 11% held by Alcatel-Lucent, 5% by Huawei and 2% by Motorola. Nokia Siemens specializes in building wireless and telecommunications networks for carriers, government and corporate customers. They currently have 60,000 employees in 200 countries and will add 7,500 employees from Motorola. Nokia Siemens has their strongest presence in countries such as China, Germany, Poland and India and hope to bolster their U.S. presence with the acquisition of Motorola. The CEO, Rajeev Suri, was the key executive sponsor of the deal.
Transaction Parameters
Nokia will pay $1.2 billion in cash to acquire Motorola’s wireless infrastructure business. In the deal, Motorola will keep $150mm in accounts receivable, cash and other assets including its wireless patents. The division sold to Nokia Siemens contained no debt and had net profits of $366mm and revenues of $3.7b last year. Many transactions have occurred in the wireless infrastructure industry with the most notable being Cisco’s acquisition of Starent Networks for $2.9b and Ericsson’s acquisition of Nortel Network’s mobile division for $1.13b.
 |
|
| Enterprise Value 1 | $1.2 billion |
|
|
| Purchase Price Multiples: | |
| 2009 Revenue1 | .3x |
| 2009 Operating Profit2 | 3.3x |
|
1) $3.7b reported by Business Week July 19 2010
2) $366mm reported by CRWE Newswire July 15 2010
Strategic Rationale
The main strategic value of the transaction is Nokia Siemens’s entrance into the U.S. wireless infrastructure market. Along with Motorola’s infrastructure assets, Nokia Siemens also cites gains Motorola’s client base to build their U.S. business. The deal also struck a blow to Huawei, the Chinese telecom giant that has been looking to gain a foothold in North America through acquisition. Huawei lost its two best targets with the acquisition of Motorola by Nokia Siemens and the acquisition of Nortel Network’s mobile unit by Ericsson. Furthermore, the division is profitable and will boost both the revenues and operating profits of Nokia Siemens while providing an opportunity to boost margins through reducing redundant expenses.
Architect Partners’ Observations
Consolidation in the wireless infrastructure industry is being driven by the highly competitive market. Companies have been forced to consolidate to cut costs in the highly competitive market with margins hovering at about 8% – 10%. In 2007, Alcatel-Lucent cited competition in Europe for its decline in profits and the squeeze on margins.
Consolidation has also been encouraged by infrastructure sharing between network operators. Fierce Wireless estimates that savings can range from 5% – 25% of RAN cost savings which account for 20% – 40% of operators expenses. As the telecom market consolidates, infrastructure sharing becomes increasingly attractive for large carriers as larger networks are controlled by single companies.