September 4, 2013, 7:00 pm
A Bloody Ballmer and Stalled Discussions on the Long Road to a Nokia Deal
By NICK WINGFIELD
SEATTLE — “We are on different planets.”
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That was the response of Risto Siilasmaa, the chairman of Nokia’s board of directors to Steven A. Ballmer, Microsoft’s chief executive, after a team from Microsoft presented an acquisition proposal to Nokia in late April. The morning presentation, led by Mr. Ballmer, took place at the offices of Skadden, Arps, Slate, Meagher & Flom in New York City.
After Microsoft’s pitch, which took about 45 minutes, Nokia’s side huddled in another conference room to consider the proposal. They weren’t satisfied. The price Microsoft was offering for Nokia was a major sticking point, but there were many other ways in which Nokia and Microsoft weren’t seeing eye-to-eye, including who would retain ownership of Nokia’s mapping service.
So went one of several pivotal meetings in Microsoft’s long, on-and-off courtship of Nokia, which finally ended this week with the software giant’s $7.2 billion agreement to purchase the Finnish company’s mobile phone and services business. The following account is drawn from people with intimate knowledge of the negotiations, who declined to be identified because the discussions were confidential.
The initial discussions about a deal began at the end of January with a five-minute phone call Mr. Ballmer made to Mr. Siilasmaa, in which he asked the Nokia chairman to meet in person so they could discuss an earlier mobile partnership the companies struck in early 2011. The two men met in February at a hotel in Barcelona that Microsoft had taken over during Mobile World Congress, an annual confab for the wireless industry.
They talked frankly about the pros and cons of their existing deal, under which Nokia used Microsoft’s Windows Phone operating system on its smartphones. Mr. Ballmer expressed a belief that Microsoft and Nokia could innovate more quickly in the mobile market if their products were produced by a single company, Microsoft.
There were other inefficiencies. For instance, the two companies were effectively duplicating their marketing, as each ran separate advertising campaigns featuring Nokia’s Windows Phones.
The two companies also needed to sort out what their long-term plans were. Sales of Nokia’s phones were picking up in some parts of their world, but they were still a tiny, single-digit fraction of smartphone shipments. Nokia had an option to exit its partnership with Microsoft at the end of 2014, which opened up the possibility that it might have switched to Google’s Android operating system, a potentially fatal development for Microsoft’s mobile phone works.
Microsoft, too, could have pursued an acquisition of another handset maker like BlackBerry or HTC. A wide variety of options were being considered by both companies.
But when it came time for Microsoft’s first formal presentation of an acquisition offer to Nokia, it bombed. The companies decided to get people from each side to have deeper conversations about the mechanics of an acquisition. Terry Myerson, the head of engineering for Microsoft’s mobile efforts at the time, began talking with Stephen Elop, then the chief executive of Nokia. Other executives in finance and legal at Microsoft and Nokia paired up.
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