Dynamics of Negotiation: The Microsoft-Nokia Deal

Daniel Wu Murphy 01/08/2022

Analysis of the dynamics of the negotiation of one of the tech industries largest acquisitions, and how companies can merge cultures without clashing.

Chapter 1: Preliminary Incentives

The acquisition of Nokia by Microsoft is an extreme example of a failed M&A offering lessons in negotiation dynamics and mistakes to avoid in future endeavours.

The Microsoft-Nokia relationship began in 2010 with the aim to develop new Nokia devices and products with Microsoft’s advancing OS system, improving the product offering to customers and allowing Microsoft to influence the Mobile Vendor (MV) Market. Initially they found great success as by the end of 2011 Microsoft had 85% market share in the OS Market, and Nokia climbed to 43% market share in the MV Market. This led to the assumption that an M&A deal would prove beneficial for both parties.

While negotiations were being finalising in 2014, both sides had even more incentive to join forces. In the recent years Apple and Samsung had disrupted the MV Market with increasingly innovative product offerings of which the likes of Nokia could not keep up, in part due to believing smartphones were a passing trend. This failure to react to the changing competitive climate resulted in Nokia’s overall market share drastically dropping from 43% to just 11%, that is a -74.42% change from 2011 to 2014.

In this, Microsoft saw an opportunity to take a shortcut into the MV Market by acquiring Nokia. They believed that with the large percentage of Microsoft users, the same customer loyalty would be reflected when they announce their partnership. It would also help them compete against rival tech giants Apple and Google who already had strong presence in the market.

Chapter 2: Negotiation Timeline and Analysis

Global Mobile Vendor Market Share (%) (Statcounter, 2022)

New Nokia CEO

September 10th 2010

Partnership Announced

February 11th 2011

LUMIA Smartphone

September 15th 2012

M&A Deal Confirmed

September 3rd 2013

Write-off Sale

18th May 2016

The Negotiation Timeline in this scenario lasted a total of six years, from initial partnership (2010) to the dissolution of Nokia (2016).

Former Nokia CEO Olli-Pekka Kallasuvo was replaced by Microsoft executive Stephen Elop in 2010. This was a strategic move as hiring a Microsoft executive strengthen the link between Microsoft and Nokia. However it was controversial amongst the Finns as this was Nokia’s first non-Finnish CEO. Nokia formally announced a ‘broad strategic partnership’ with Microsoft in 2011, and while they were heralded by the media for bringing Nokia back to the forefront of the smartphone revolution, the at-home controversy slashed Nokia stock prices by 10%. This can be considered as the first point of friction, and an indicator for potential failure. During early stage negotiations they should have considered the Cultural and PR impacts that this significant action could have caused, and perhaps renegotiated terms to giving Microsoft majority share (51% minimum) while still having the Finnish origins influencing business operations.

In 2012 Nokia unveiled the Lumia smartphone which ran on Windows 8. Increasing sales indicated future profits and potential for growth, however it was still losing overall market share to Apple and Samsung. Until now it was been Nokia taking the brunt of the blows, although 2012 reflected a poor operational performance from Microsoft, stemming from Microsofts original PC users who were unimpressed by Windows 8 mobile optimisation. This caused both Nokia and Microsoft to struggle in previously successful markets, and drive the need for drastic action. Microsoft did not fully consider the implications that mobile optimisation would have on current business offerings. In future negotiations, the value of the satisfied customer is paramount and the deal cannot impede of current services.

Ignoring previous failure indicators such as public backlash and company devaluation, the $7.2 Billion M&A deal was announced. Microsoft had acquired complete control on Nokia patent’s and 32,000 employees. The transition was expected to be smooth given the respective prowesses in software and device production, however the resulting was dissolution of Nokias identity for the sake of a synergetic deal and Microsoft not getting the market share it desired. Microsoft launched ‘Microsoft Mobile’ in 2014 in an attempt to create a marketable sub-brand, but was impeded by overall diminishing returns and a total of 20,300 job cuts during the 2014-2015 annual period. Resulting ultimately in a new agreement between HMD Global and Foxconn Technology to sell the rights to Nokia for $350 Million. This concluded the deal at an over all -95.14% decrease in value.

Chapter 3: Solutions and Frameworks

This analysis has highlighted the volatile dynamics during negotiations, as there are many external forces affecting the future success of a deal. Negotiating is a dynamic communication process where information, goals, concerns, and emotion all determine the quality of the discussion. Being able to effectively plan and prepare meetings by including assessment guidelines, strategic planning, and risk management in the negotiation process.

M&A Integration Methodology (Wu-Murphy, 2022)

Another solution is to apply frameworks such as the M&A Synergy Framework to cases, allowing for the assessment of cultural barriers and its effect on cross-border negotiations. The framework allows for a better understanding of where synergies and value can be created from the deal. That is the goal of any negotiation and strategies that aid in reaching that goal are vital to plan around. The proposed figure is an elaboration on the follow elements of: communication, behaviour, management, environment, accounting and finance which are the key cultural elements to consider during a negotiation.

Moreover, if done successfully it contains multiple layers of value creation starting at protecting the base-business. Expending effort to preserve the pre-merger value and maintain the core of the business. This was a serious issue that the Microsoft-Nokia M&A faced on both sides. Going deeper, synergy frameworks capture combinational synergies which are traditional value creation effort with the enhanced business capability post-merger. Finally, looking for future potential and transformational synergies can often uncover hidden value by radically transforming select products or processes.