Money wanted
June 27, 2011
Selling stakes in telecom ventures isn't easy these days, as Nokia and Siemens can attest. The two partners have so far failed to find one or more investors willing to acquire a controlling stake in their loss-making telecoms equipment joint venture, Nokia Siemens Networks (NSN).
In 2007, under a six-year agreement, the Finnish and German manufacturers merged their telecom equipment business into a 50-50 joint venture, in the hope of quickly achieving double-digit margins. But the venture has failed to become profitable.
NSN, which lost 107 million euros ($157 million) in the first quarter and 686 million euros euros last year, continues to suffer from ever fiercer competition, particularly from its two major Chinese rivals Huawei and ZTE, which tend to be cheaper.
Hunting for private equity
Earlier in the year, NSN chief executive Rajeev Suri confirmed talks with private equity companies. The benefits of bringing an additional owner on board, he said then, included an infusion of new capital as well as expert advice on purchases to round out the company's portfolio.
However, talks with two key US private equity groups have stalled, mainly over an agreement on both price and the level of control, according to insiders.
The one group consists of TPG Capital and Kohlberg Kravis Roberts, which is no stranger to Siemens, having once invested in a spin-off of the former Siemens Nixdorf computer company. The other private equity group combines Gores Group and Platinum Equity.
Nokia Siemens has also held talks with Bain Capital, the Blackstone Group and Silver Lake Partners.
One of the earlier offers included a 30 percent minority stake in exchange for a cash infusion of at least $1 billion. A more recent one calls for an investment of $2 billion for a controlling 51 percent stake.
"Multiple options continue to exist," Nokia spokesman James Etheridge told Deutsche Welle, declining, however, to elaborate on what those options could be.
Acquisition option
An initial public offering (IPO) is viewed as one possible option either before or after the joint venture agreement comes to an end.
Another is an acquisition. Korean electronics giant Samsung is already rumored to be preparing a bid for NSN.
"If it comes to an acquisition, I think a more likely buyer would be a rival from another area of the world that is looking for customers and assets," said Camille Mendler, an analyst with the Informa Group in London. "But, of course, such a move would be subject to regulatory approval and that could be very difficult."
Yet another option is for both Nokia and Siemens to invest more money into their joint venture, which posted 12.7 billion euros in revenues last year
Analyst Mendler believes NSN "is still a player" with "lots of horsepower" that can survive on its own.
"The company has undergone some extensive restructuring and made a real effort to drive new revenue streams beyond its core hardware business, becoming a proper systems integrator and service provider," she told Deutsche Welle.
That said, NSN still has its feet firmly planted in the hardware business as the world's second largest manufacturer of wireless infrastructure products. Last year, it paid $975 million to acquire the wireless infrastructure business of Motorola, which generated $3.7 billion in revenue from network equipment the year before.
Despite the fierce competition in the telecoms infrastructure business, analysts agree there's still plenty of opportunity to make money. Nokia and Siemens just need to figure out how.
Author: John Blau
Editor: Nicole Goebel