Microsoft is buying Nokia's smartphone and handset business in a $7.2 billion deal. The deal includes the purchase of Nokia's Devices & Services unit for $5 billion, and Nokia's patents for $2.2 billion.
The news boosted Nokia's shares close to 50 percent in pre-market trading. However, following the announcement, Microsoft shares fell close to 1.5 percent.
As reported by USA Today, the purchase will allow the handsets to remain competitive against Samsung and Apple. Windows phones are currently the third largest smartphone, recently surpassing BlackBerry.
Microsoft and Nokia have collaborated since 2011. Working together, the companies have continued to grow in the European market. The purchase is expected to secure a place in the US market as well.
The purchase underlines Microsoft's intention to focus on devices rather than software. The $7.2 billion deal is Microsoft's second most expensive acquisition. The purchase of Skype in 2011, for $9.3 billion, was the largest.
Microsoft CEO Steve Ballmer and Stephen Elop issued a mutual statement about the purchase:
"Nokia and Microsoft have always dreamed big... we've come a long way toward realizing those dreams. Today marks a moment of reinvention."With the conclusion of the deal, Elop will be appointed as Executive Vice President of Devices and Services. Microsoft's offer to buy Nokia will take place in the first quarter of 2014, pending shareholder approval.
As Ballmer plans to retire within the next year, Elop will be a likely candidate for his position.
As reported by The New York Times, Nokia's 32,000 employees are included in the deal. Their jobs will simply be transferred to Microsoft.
Nokia will continue to focus on their NSN telecommunications equipment unit. They will also retain their mapping business and numerous patents.
Liberum Capital analyst Janardan Menon points out that "it's a good deal for both Microsoft and Nokia."
As Microsoft buys Nokia, both companies will have unique opportunities to grow and remain competitive.
[Image via Flickr]