Over the past several days reports say that Siemens (SI) is determined to sell-off Nokia Siemens Networks -- NSN. Both Nokia (NYSE:NOK) and Siemens have been searching a way to divest of NSN of some time now, but there was never really any insight as to when or how.
While it is clear that Siemens is looking to sell NMN all together, it is not exactly crystal clear what Nokia plans to do. There are those that say that Nokia also wants to sell NSN, but that it might look into an IPO option also, while I have even read that Nokia might be interested in buying Siemens' 50% stake.
Today I will try to evaluate if a divestiture of NSN by Nokia is beneficial to the company and what might Nokia's balance sheet look like if it sells NSN. So let's put Nokia's consolidated balance sheet and NSN's balance sheet side by side and do some financial surgery. For the purpose of this presentation, I will use the consolidated balance sheet of NSN from its own site here and the Nokia's consolidated group financial data from its own web site here. Please note figures are in IFRS and euros expect where noted otherwise.
So if Nokia sells (by some means) its ownership in NSN, it will have a balance sheet with about 11.5 billion euros in current assets and about 9 billion in current liabilities. While that does leave some room for working capital, I can't say it gives Nokia a lot of breathing space.
Nokia's sales will be about 10-12 billion euros with an equity position of about 7 billion euros with about 1 billion in cash on the books. It's also noteworthy that on a NON-IFRS basis, NSN actually produces good free cash flow and after tax profits, that Nokia does not. Also, Nokia will inherit more liabilities analogs to the balance sheet than NSN. In other words, on the average, Nokia's balance after the NSN divestiture, will not change much.
However, Nokia will receive money in consideration for its divestiture. The question is, how much money can it get? According to a recent WSJ article, some analysts think NSN might be worth up to 7 billion euros ($9.4 billion) including debt. NSN has about 1.3 billion euros of debt. So if the offering price that the WSJ gives is a guide, it means that the total price without debt will be about 5.8 billion euros. But since NSN is owned 50% equally by both Siemens and Nokia, it probably means that they will each receive about 2.9 billion euros (about $3.85 billion) in cash each.
So Nokia's benefit will be a much needed cash infusion of about 2.9 billion euros. However please note that Nokia's sheet before the cash infusion (NSN divestiture), is not all that great to begin with. The 2.9 billion euros cash infusion will go to good work, but it's really nothing to cheer about.
Assuming that Nokia will use the proceeds to reduce its total short term liabilities, then its current liabilities will total 6.1 billion euros with total liabilities around 9 billion euros.
However, there are certain issues to take into consideration. Please recall that Microsoft (NASDAQ:MSFT) pays Nokia about $250 million per quarter. That subsidy will soon end. Nokia will have about $1 billion less in cash inflows at some point. So Nokia has better get its act together by then, because even on a NON-IFRS basis, Nokia is barely above water. So even if Nokia manages to sell its stake in NSN, long term it is really not out of the woods.
If Nokia does sell its stake in NSN, then the only company coming close to its numbers is BlackBerry (NASDAQ:BBRY). So let's put both Nokia and Blackberry's balance sheet side by side to do a comparison. The Nokia numbers assume the sales of NSN.
As you can see, even if Nokia sells 100% of NSN in consideration for 2.9 billion euros, BlackBerry's balance sheet is actually still better.
Even If we assume that Nokia sells 100% of NSN for a 2.9 billion euro consideration, it does not mean that Nokia's problems are over, just that Nokia is given some breathing space. Nokia is still in restructuring mode and over the long term, it still has to prove itself.