Microsoft - Nokia Acquisition

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From then, Nokia changed its strategy and decided to focus on shared values and interests. They had lost they power of negotiation by waiting 2 years. That is what increased legitimacy of Microsoft in this power struggle. [pic 4][pic 5]

Solutions away from the table (SAFT)

In 2011, the SAFT for Nokia was to let Microsoft buy its handset business at the price they offered and let Microsoft acquire HERE mapping service from them. At this time, the SAFT for Microsoft was to do nothing. Meaning, if the acquisition’s deal failed, they could not just walked away, they had to establish a partnership with Nokia.

Then things changed 2 years later and the SAFT for Nokia in 2011 was now the only solution remaining to save their handset business from bankruptcy.

Regarding the BATNA, Microsoft had a strong one: it had lots of other possibilities than Nokia (HTC, Samsung and Huawei). However, Microsoft did not use it; its approach was to continue negotiating with Nokia while other partners were available. Microsoft had a strong financial position in 2011 whereas Nokia had a weak BATNA because it would have been really expensive to convert to Android. Instead, Microsoft decided to wait until Nokia gave in 2 years ago but the fast-paced technological environment does not allow for such delays in strategy implementation. The share of Nokia’s dropped and its handset business lost value. The BATNA was now to align their strategies and to focus on shared values and interests.

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Process – How?

Organization & logistics

All the communications and exchanges were in English, a language that both parts have no problem to understand.

Steve Ballmer first contacted Risto Siilasmaa by telephone at the end of January 2011 to begin the talk. Then, they met during the Mobile World Congress in Barcelona. The two CEOs talked at the Rey Juan Carlos Hotel about all the possibilities of evolution for the two companies. During the entire negotiation, Steve Ballmer negotiated with Stephen Elop. On April, Nokia and Microsoft met in Skadden Arps Slate Maeger office in New York. For Nokia, Siilasmaa and Stephen Elop were presents, as well as the company’s lawyer Louise Pentland and the financial director, Timo Lhamuotila. For Microsoft, Steve Ballmer was present with three others persons: Terry Myerson, the director of Windows Phone, Peter Klein, the financial director and the general advisor, Brad Smith. Over the 2 years and a half of partnership, they exchanged a lot through videoconference and calls. The last important meeting was the one in Finland, in September 2013 when Steve Ballmer and Brad Smith met Risto Siilasmaa and Stephen Elop. After a long meeting, the two companies finally come to the final agreement.

Communication

During this negotiation, they used different ways of communications. Both parts spokes through the phone and the Internet (email and video conference). They also met a few time, the first meeting took place during the Mobile World Congress. Then, members of the two companies met in the USA, in Finland, and in the UK.

Focus on a particular issue relevant in that case: coalition building

The negotiation aiming at coalition building between Microsoft and Nokia failed several times before it succeed. Both companies agreed that inefficiencies existed in their current agreement, including duplicate engineering, marketing and advertising efforts for example. But the main issue was the price and the ownership of Nokia’s HERE mapping service. Without ZOPA and with both sides refusing to comprise, the negotiation had reached an impasse. Part of the reason was that either Nokia or Microsoft had their own secret weapons lurking behind the sale negotiations, which prevented them from successful coalition building. Thus, they were more likely to persist with little regard for comprising.

For Nokia, it narrowed in on two possible options: it could sell its underperforming handset business to Microsoft or to other companies like Huawei, and focus on its telecommunications equipment, mapping and patent businesses, or it could let its partnership with Microsoft lapse at the end of 2014 and try to revive its handset business by adapting its smartphones to Google’s Android system. To a certain extent, the second option seemed to be the secret weapon in the sale negotiations.

Actually, it turned out Nokia had a working Android Lumia smartphone up its sleeve and a team within Nokia had already made an Android handset well before it headed into negotiations with Microsoft over the sale of its devices and services business. Also, Nokia had a plan called ‘AOL’ (Asha on Linux), which was concentrated on adapting low-end phones to Google’s Android system in order to increase profit. Given both high-end and low-end phones with Android system, it was possible for Nokia to change its current position and become better when moving to Android platform, which definitely weakened its motivation to find an arrangement in sale negotiations.

For Microsoft, when Nokia was testing Android system compatibility for devices, it also had its plan B in case of failure. Microsoft had developed various models of Surface Phone to test its feasibility. That is to say, even if Nokia chose to end the deal with Microsoft at the end of 2014 rather than compromise and reach an agreement in sales negotiations, Microsoft had the ability to face with the unknown future, which definitely prevented Microsoft from being excessively dependent on one company. Hence, such plan also weakened motivations to find solutions at the table in sale negotiations: both companies had their own secret weapons.

In this way, Nokia turned down a disappointing proposal from Microsoft for the acquisition of its handset business, at the first meeting. Similarly, Microsoft was unwilling to provide generous takeover offer to facilitate such acquisition due to its own bargain power. It is the alternative solutions for both sides that weakened the willingness to reach an agreement as Nokia could turn to Android system while Microsoft could develop its own Surface phones. As a consequence, no solution was found because there was no ZOPA. However, if business acquisition was the only option for both sides, it could have become much easier to find a solution at the table owing to the strong desire on coalition building.

In 2013, the smartphone industry has known a fundamental shift with the fast-growing technologies

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