The "minimum of six years" joint-venture between Nokia of Finland and Siemens of Germany, signed with a mighty fanfare of trumpets back in 2007, has not been a success. Still unprofitable four years on, the company has been trying to sell itself to various private equity outfits. That ploy has failed and Nokia Siemens now needs some €2 billion to "restructure" itself. Martyn Warwick reports.
The aim and intent of Nokia Siemens Networks (NSN) was that the merger of the telecoms infrastructure equipment arms of the two big companies would result in rapid economies of scale and double-digit profits.
It didn't happen. NSN lost €107 million in Q1 this year and €686 million in 2010 as it faced implacable competition from the likes of Huawei and ZTE of China. NSN's €2 billion line of credit will expire in early summer next year and will have to be replaced with something, so time is of the essence.
For several months past, NSN has been looking for someone from the private equity world to take a controlling stake in the venture, but potential buyers have been very wary and in the end NSN has been forced to admit defeat and will have to find another way out of its troubles.
So, what can NSN do now? Well, probably the quickest and simplest way to raise the big sum of money it needs to restructure itself would be to go to IPO - but it's hardly the ideal time to opt for what would be a risky option.
Another route, and seemingly the one preferred by NSN, would be the issuance of a high-yield bond in the sum of €2 billion - but them look at the state of the bonds market.
Other than the above the only other route available to NSN might be acquisition, but that would probably be at a knock-down price. For months now there have been rumours a that Samsung of Korea is interested in making a bid for Nokia Siemens. If that turns out to be the case, the Koreans won't be offering top dollar, that's for sure.
On the other hand, NSN's revenues last year were in excess of €12 billion, so there's a lot of money flowing through the company, it's just that not enough of it is sticking to provide the promised profits. The company has assiduously cut costs and streamlined itself but will need a big cash injection to set itself finally to rights and manage its day-to-day cash flow.
The trouble is the times we live in. The continuing dreadful economic news and real fears of a second "double dip" global recession makes this a very, very bad time to try to raise money. Private equity investors obviously think so or they would have already bought into NSN - and this leaves the company's top brass with a headache and a situation which is becoming a case of Hobson's Choice, which is, of course, no choice at all.
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