February 24, 2013 10:51 pm

Siemens accelerates Nokia joint venture exit

Siemens will accelerate efforts to exit or lower its exposure to a telecoms equipment joint venture with Nokia that has long been burden on the German engineering company.

In April, Siemens and Nokia, the Finnish mobile phone maker, will become free to take action regarding Nokia Siemens Networks when a six-year old shareholder agreement comes to an end.

“Siemens will definitely become active and not just behind the scenes,” said a person close to the company, who added that it would look to cut its 50 per cent stake to below 20 per cent. “But I’m not saying there will definitely be an outcome.”

Siemens, whose products include trains, medical scanners and wind turbines, has long made clear its desire to get out of the European telecoms sector which has been hit by price erosion and competition from Asian entrants such as Huawei.

In November, Siemens announced that it intended to sell a variety of smaller, non-core businesses but analysts say any action on NSN would be a much more significant move as it would lower the risk to Siemens’ balance sheet.

Nokia and Siemens talked to private equity groups about a sale of NSN in 2011 but failed to strike a deal, forcing the two groups to bolster its balance sheet with a further €1bn of equity.

NSN cut 17,000 jobs last year and refocused its operations on mobile broadband and higher margin services. Having rarely turned a profit since its creation in 2007, NSN generated three consecutive quarters of underlying profitability.

Analysts at Berenberg said NSN’s return to form was “a very good story to sell to investment bankers and trade buyers. Both parents want an exit; the question is will it be an IPO, a trade sale or a spin-off?”

NSN said: “We’re executing a business strategy that delivered industry-leading financials in the second half of 2012. Ownership questions are for our parents.”

The job cuts carried out by Siemens and Nokia over the past year mean a renewed attempt to sell to private equity is difficult as the value-creating restructuring typically favoured by such funds has already been done.

Still, the person close to Siemens said it would ideally like a private equity investor or consortium with a solid record in technology to take a controlling stake in NSN, allowing Siemens and Nokia to reduce their holdings.

In a second step, NSN could take over Alcatel-Lucent, the struggling Franco-American telecoms equipment company, and then form two companies; one in mobile broadband and another in IP and optical networks.

“These private equity guys could pull that off. That would probably be a very rewarding outcome and real industrial logic,” the source said.

Analysts have applied an enterprise value for NSN of up to €10bn but the person close to Siemens said the true number might only be only around half that amount.

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