Nokia announced Tuesday that it has agreed to sell the company’s handset business and license its patents to Microsoft for €5.44 billion ($7.17 billion).
Under the deal, Microsoft will pay €3.79 billion ($5 billion) to buy out Nokia's Devices & Services unit and an additional €1.65 billion ($2.2 billion) to license Nokia's patents.
The deal culminates the partnership the pair entered into in February 2011 to compete against Apple and Samsung in the fiercely competitive smartphone market.
Microsoft's acquisition will be its second largest deal ever, after the $9.3 billion buyout of Skype in May 2011. The deal also shows Microsoft’s commitment to gaining a stronger foothold in the smartphone market.
For Nokia, the sale comes months after the struggling Finnish handset maker acquired Siemens’ 50% stake in NSN, its network infrastructure JV. The deal might improve investor’s confidence in the company’s future prospects.
Nokia said it expects to book a gain on sale of €3.2 billion, and expects the transaction to be significantly accretive to earnings.
Meanwhile, Stephen Elop will be stepping aside from his role as Nokia's president and CEO under the acquisition deal of Microsoft.
Following today's announcement of the deal, Elop - a former Microsoft executive joined the Finnish handset maker in 2010 - will become executive vice president of devices and services at Nokia, and report directly to Microsoft chief Steve Ballmer.
Other Nokia executives will also join Elop’s team include design team boss Marko Ahtisaari, smart devices chief Jo Harlow, operations head Juha Putkiranta, feature phones director Timo Toikkanen, and sales and marketing EVP Chris Weber.
Risto Siilasmaa, chairman of the Nokia board of directors will take on the role as Nokia interim CEO. Timo Ihamuotila becomes president of Nokia for the interim period while also continuing to serve as CFO.
The deal is expected to close in the first quarter of 2014 subject to shareholder and regulatory approval. At closing, approximately 32,000 people are expected to transfer to Microsoft, including approximately 4,700 people in Finland.