Takeover Tuesday – Microsoft Bags Nokia Mobile Unit

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!  Not bad for a trade idea that only required $360 of cash to initiate… 

MSFT also seems to have bought NOK CEO Stephen Elop, presumably to replace Steve Ballmer and, before you ask – yes, it's worth $7Bn just to get rid of Steve Ballmer!  Also, MSFT is buying NOK with $7Bn of that tax-free cash pile that was stuck overseas anyway, so a very good deal for the cash-rich company (until they blow it when they have to unwind that division in 3 years).  

Al Hilwa, an analyst at IDC, noted the price was almost too good to pass up for Microsoft, which ended up paying less for Nokia's smartphone business than the $8.5 billion it did for the communications service Skype in 2011.  The people at Blackberry, meanwhile, are of course concerned:

Meanwhile, back in the markets.  We're getting a bump over Global relief that there's no imminent war with Syria (another thing we knew already) and the Yen dropped like a rock, back to 99.50 and that sent the Nikkei flying back from 13,300 on Friday to 13,950 this morning – making the full 5% move in two sessions which means they either pop it or drop it at the 14,000 line.  

We had huge success shorting the Nikkei in August (see our August Trade Review), but that was from 14,500 to 13,350, where we stopped shorting them (but didn't go long) due to the war talk keeping the Yen stronger than it should be.  We'll see how the Yen handles the 100 mark (weaker) before looking for a bear play on the Nikkei.  

We're in wait and see mode as we're having our requisite weak bounce today (1% of the 5% drop) with the Dow, for example, falling 800 points from 15,600 to 14,800 so 160-points is the weak bounce to 14,960 on the Dow so that's our goal for the day if we're to be at all impressed.  

Of course, MSFT will handicap the Dow so we turn to the S&P, who ar down from 1,710 to 1,630, which is 80 points (exactly 1/10th of the Dow's 800 for those of you who are observant re. obvious Bot trading) so 16 points there is 1,646 for the weak bounce on the S&P.  

Nasdaq 3,620 should be well over, so we'll look for 3,640 (strong bounce) on that one.  NYSE 9,380 is up just about 1% from Friday's close and Russell is our bounciest index so we'll be watching 1,020 and 1,030 (strong) with great interest.  It's also such a big data week, that I'm just going to leave you with StJeanLuc's chart to summarize it:

It's going to be interesting, to say the least.