The end of independence for Finish firm Nokia, it will be acquired by Microsoft at the beginning of 2014

Microsoft to buy Nokia's mobile phone arm

Microsoft, the world’s biggest software manufacturer, will acquire Nokia’s phone branch for £4.6bn, underlining its ambitions to expand in the smartphone market.

The mobile-phone making arm of the Finnish firm Nokia, once the world’s mobile phone market leader, will thus become a Microsoft telecoms equipment maker. The acquisition includes a ten-year licensing agreement allowing Microsoft to use Nokia’s patents. Nokia itself will continue producing networking equipment and hold patents.

"It's a bold step into the future – a win-win for employees, shareholders and consumers of both companies," said Steve Ballmer, the retiring CEO of Microsoft.

The deal, expected to be closed in early 2014 will have 32,000 Nokia employees transferred to Microsoft.

Nokia’s mobile phones, including the flagship Lumia smartphone, have been running Microsoft’s Windows Phone software since 2011, and this deal means the cooperation has now been taken another step further. Microsoft, who launched its Surface tablet last year in a bid to catch up on his rivals Apple and Samsung, now looks set to claim a bigger share of the mobile device market.

"Bringing these great teams together will accelerate Microsoft's share and profits in phones, and strengthen the overall opportunities for both Microsoft and our partners across our entire family of devices and services," Ballmer said.

Nokia’s president and chief executive Stephen Elop will step down and become a head of the Nokia devices and services business within Microsoft.

He has been tipped as one of the front-runners to take over the leadership of Microsoft after Ballmer’s retirement next year.

Commenting on the deal, Elop said the merger provides the "opportunity to accelerate the current momentum and cutting-edge innovation of both our smart devices and mobile phone products".

Industry experts say that whether the acquisition will be able to stop the descent Nokia has been experiencing in recent years, remains to be seen. "Microsoft effectively 'acquired' Nokia several months ago when it entered into a deal to license Windows Mobile to Nokia, making Nokia entirely reliant on Microsoft's software for its mobile future," said Victor Basta, managing director of Magister Advisors. "Nokia’s value has eroded progressively since, making the actual deal to acquire the mobile business even more attractive now for Microsoft.  In the meantime Microsoft has had the chance to work with Nokia and learn about the business, so this now looks like a safe deal for Microsoft."

It is understood that Microsoft and Nokia have been in negotiations since the end of January.

It is the latest mega deal in the telecoms sector after UK-based Vodafone last night confirmed the sale of its 45 per cent stake in US group Verizon Wireless for £84bn.

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