Will Nokia Shareholders Approve The Acquisition?

| About: Nokia Corporation (NOK)

We all heard and read about Microsoft's (NASDAQ:MSFT) acquisition of Nokia's (NYSE:NOK) mobile devices business with the exception of the latter's patent portfolio (with the exception of Nokia's 8,500 design patents) and brand name/logo. The acquisition still has to gain approval from Nokia's shareholders who will be voting it next month. While some of Nokia's investors are against the acquisition, some are supportive of it. I think most shareholders will vote "yes" for the acquisition at the end of the day.

First, most investors who were against the acquisition already sold their shares in the last few weeks. If an investor thought Nokia made the wrong decision by selling its phone business to Microsoft (especially at such cheap prices), he or she is probably more likely to sell his or her shares because they don't think investing in Nokia makes sense anymore. This will create a "survivor bias" at the voting where most remaining Nokia shareholders will be those who have positive opinions regarding the acquisition.

Second, many people consider the stock market as a voting mechanism. Since the acquisition, Nokia's share price jumped by more than 50%, which shows that the shareholders of Nokia are more likely to vote "yes" than "no" next month when the acquisition will be voted.

On the other hand, things might still change. Think of it this way: a lot of the people who sold their Nokia shares in the last few weeks sold their shares to a profit if they bought their shares anytime in the last year or so; however, most people who bought the shares in the last few weeks will need Nokia to go much higher before they can realize any meaningful profits. There will be a lot of shareholders who bought Nokia at prices above $6 at the voting and many of them might be reluctant to vote "yes" if it doesn't offer them a special incentive. This is why Nokia might offer a one-time dividend or large buyback to the new investors in order to facilitate a positive vote from the shareholders.

Then, another question comes to mind: what if Nokia posts really strong results this quarter? The company's results for the next quarter will be due around the third week of October, which will be shortly before the voting. If Nokia's mobile devices business posts exceptionally strong results or the company's networking business posts weak results (or both) this might change the minds of many investors.

Due to the Finnish laws, Nokia has to warn investors in advance if its results will be much different than the guidance it gave investors last quarter. On the other hand, this doesn't apply to a company's business segments. For example, if Nokia issues a guidance of a profit of $0.40 per share, the company will have to issue a warning if it ends up posting a loss of $0.60 per share. On the other hand, if Nokia's handheld devices business performs much better than its guidance but this is offset by a bad performance of the company's networks business, it will not have to change its guidance because the overall number won't change by much. If Nokia's handheld devices segment performs exceptionally well, many investors might think that Microsoft is not paying enough for the business segment. Also, if Nokia's networking business performs badly, many investors might think that letting go of the handheld devices was not a good idea after all. The vote could easily change from "yes" to "no."

Meanwhile, Nokia's CEO Stephen Elop will be receiving $25 million as he transfers from Nokia to Microsoft. Many people will be looking at this like a bribe and their voting decision might change depending on this. For years to come, people will be wondering and discussing whether Mr. Elop sold out. A lot of Nokia shareholders might be inclined to vote "no" just to stop Stephen Elop.

In the early 1990s, the Finnish economy was in depression, and Nokia alone was able to pull the country out of depression to growth mode. Nokia always played a big role in the Finnish economy, claiming as much as 5% of the country's GDP, a quarter of the country's growth and 30% of the country's exports at some point. Now the Finnish economy is in a much better shape than it was in the early 1990s but the country's economy will still depend on its technology industry. Why am I mentioning all this? Well most of Nokia's shares are being traded in the Helsinki Stock Exchange and most Finnish investors (both retail investors and funds) are heavily invested in the company. If the Finnish economy suffers from lack of Nokia's exports, this might affect the company's valuation in the Helsinki Stock Exchange. This is an angle to consider.

On the other hand, Nokia had already moved most of its operations outside of Finland and any business that remains in Finland will stay in Finland even after a Microsoft acquisition. This is something Microsoft's management confirmed earlier.

Given that most Finnish investors probably started investing in this company several years ago, many of them probably invested in the company when it was trading for values like $15-20. Those investors are likely to vote "no" to the acquisition since they won't be getting most of their money back as a result of the acquisition. There will be also some Finnish investors who feel the "Finnish pride" and will vote "no" for nationalistic purposes. At the end of the day, a great majority of Nokia's investors are from Finland since most of the company's shares trade in the Helsinki Stock Exchange.

Having said that, I believe that most people will vote "yes" for the acquisition even though there will be many people voting "no." It looks like most people who didn't agree with the acquisition already sold their shares (looking at the high volume in the recent weeks) and those who agree with the acquisition replaced them by buying the shares. Of course, this is mostly my estimate and the fact might be a little different. When the voting comes, we'll find out how most Nokia investors feel about selling the company's phone business to Microsoft at a relatively cheap price.

Disclosure: I am long MSFT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.