Takeover Tuesday – Microsoft Bags Nokia Mobile Unit

They're number 3!

Come on people, chant with me – they're number 3!  Still, for $7Bn, buying the #3 spot in the mobile phone market is a pretty big deal but investors are not liking it (nor should they) as it just sets MSFT up to get their asses kicked by AAPL in an even more embarrasing way than the ways they've already gotten their asses kicked over the years.  

Even stranger, MSFT is only buying NOK's "devices and services" business for $7Bn.  What exactly does NOK then, have left?  The proposed price consists of 3.79Bn Euros ($5 Bn) for the Nokia unit that makes mobile phones, including its line of Lumia smartphones that run Windows Phone software. Another 1.65 Bn Euros ($2.2Bn) will be paid for a 10-year license to use Nokia's patents, with the option to extend it indefinitely.  

Actually, the reason NOK popped 45% on the deal is that Mobile Phones are only 23.8% of the company's value with more of the company's worth (36.3%) coming from Nokia/Siemens Networks along with 11.1% from Navtech Digital Maps and the rest of the value is $5Bn of net cash, now $12Bn thanks to MSFT.  That's good for us as we added 3,000 shares of NOK to our Income Portfolio as recently as 6/18 with my comment to Members at the time:

NOK/Kustomz – Interesting.  They can still be played as an artificial buy/write with the 2015 $2.50/3.50 bull call spread at 0.60, selling the $3 puts for .48 and the worst-case there is owning them for net $3.12 (now $3.89).  That's not a bad idea for the Income Portfolio as 3,000 of them makes a very quick $2,640 if they do get bought and, if not – we just have to hope they hold $3.50.

Yes, that's correct, we knew they were in play 2 months ago – didn't everybody?  Our trade idea should go for about the full $2,640 profit (733% gain on cash) on this bump, 16 months ahead of shedule!