Another Blistering Merger Fail, but Wall Street wins again.
Microsoft entered the final-final or pre-final-final episode of its Nokia saga. Its press release on Wednesday explained that it would “streamline” its smartphone hardware business. It would throw in the towel on smartphones for consumers and try to carve out a niche in corporate smartphones. It would be accompanied by more bloodletting.
With its usual big-money genius, Microsoft had acquired Nokia’s mobile-phone business and patents In September 2013. Nokia’s credit rating was junk. Its market share had collapsed. It had lost over $4 billion the prior year. But its smartphones were using the Windows Phones operating system.
The original terms of the deal called for a purchase price of $5.4 billion. This soon ballooned to a new purchase price of $7.2 billion. To make the deal go down better, Microsoft promised $600 million in annual cost savings within 18 months.
In an April 2015 SEC filing, Microsoft disclosed that the total purchase price ended up being $7.9 billion. Three months later, in its annual report for the year ended June 30, 2015, it disclosed that, after all the beans had been counted, the “total purchase price” of Nokia had ballooned to $9.4 billion.
In July, 2014, six months after Satya Nadella had been anointed CEO, the annual cost savings came into focus: 18,000 people would be axed, at a cost of $1.6 billion. Shares jumped to a 14-year high.
A year later, in July 2015, Nadella explained to his worried underlings that Microsoft would ax another 7,800 people, “primarily in our phone business,” as part of a “fundamental restructuring.” And it would write down its Nokia assets by an additional $7.6 billion, on top of a restructuring charge of $750 million to $850 million.
At that point, the $9.4 billion “total purchase price” had led to $10 billion in write-offs, decorated with the destruction of 25,800 jobs.
So how smart was that smartphone strategy?
Gartner reported last week that Windows software had a nearly invisible 0.7% share of the smartphone market, down from 2.5% a year ago. People don’t even know that there are still smartphones running Windows.
At the time, Microsoft said that the bloodletting would be wrapped up by the end of its fiscal year, June 30, 2016. But Microsoft wasn’t through yet. So more bloodletting.
On Wednesday, it announced that it would ax another 1,850 jobs. Of them, 1,350 would be in Finland where Nokia had once been the corporate star. And there’d be another “impairment and restructuring charge” of $950 million, including $200 million in severance payments.
“We are focusing our phone efforts where we have differentiation – with enterprises that value security, manageability and our Continuum capability, and consumers who value the same,” Nadella explained in the press release.
The completion date has once again been move out. Instead of having everything squared away by June 30, 2016, it would be finally “fully completed by July 2017.”
The post-final preliminary sub-total….
So far, that misbegotten acquisition with a “total purchase price” of $9.4 billion has led to about $11 billion in write-offs and the destruction of 27,650 jobs.
On the positive side, Microsoft was able to unload its low-end mobile phone business to HMD Global Oy and FIH Mobile Ltd., a subsidiary of Hon Hai/Foxconn Technology Group, for $350 million. At least it got something.
Executive VP of the Windows and Devices Group, Terry Myerson, told the remaining employees in an email that the company wasn’t actually throwing the towel in on the mobile phone business. They’d continue to “develop great new devices,” he wrote, and added in parenthesis, “(we’re scaling back, but we’re not out!).”
Microsoft has been through this before.
Microsoft should have known because it’s a repeat offender. Its biggest acquisition fail until then: in 2012, the year before it plowed into the Nokia idiocy, it wrote off $6.2 billion for the fiasco acquisition in 2007 of online marketing and advertising company aQuantive. That was nearly the entire purchase price.
That’s how these mega Mergers & Acquisitions work.
They’re designed by Wall Street to extract fees at every step along the way, and by Corporate America to show some kind of growth where there’s none and to enrich executives and aggrandize their power. Creating oligopolies that can stifle innovation is also a laudable goal.
Throughout, Wall Street analysts and corporate chieftains tell investors one line of bull after another to manipulate up shares and bonds or at least to bamboozle investors into not dumping them.
Rarely does anything good come of these mega M&A deals. They don’t move the economy or even the company forward. They don’t boost innovation or productivity. Instead, they distract the company, destroy jobs, blow up capital, entail shut-downs, stifle innovation, and trigger economic decline.
References to 2009 & the Global Financial Crisis keep popping up in the reports about manufacturing not only in the US about around the world, because that’s how bad it has gotten. Read… Manufacturing Recession Goes Global as Demand Withers
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.