Microsoft snaps up Nokia's mobile division for €5.4bn

Megadeal underlines Microsoft's commitment to hardware and its devices and services strategy

Microsoft has agreed to buy phone maker Nokia's mobile business in a €5.4bn (£4.57bn) megadeal - fuelling speculation the phone maker's chief executive and former Microsoft man Stephen Elop is a shoo-in for departing Ballmer's job.

Microsoft will pay €3.79bn for Nokia's Devices and Services business and €1.65bn to license the firm's patents as part of the deal, which is expected to close in the first quarter of 2014, subject to shareholder approval and other closing conditions.

The Finnish phone firm's shares rocketed 47 per cent in early trading this morning following the announcement, according to Reuters.

Last month, Microsoft chief executive Steve Ballmer (pictured) announced he would retire within 12 months, and said a new leader is needed to manage its long-term move to becoming a devices and services firm - a transition the Nokia buy will likely accelerate.

Nokia boss and former Microsoft Business division boss Stephen Elop was mooted as an outside bet for taking over from Ballmer when he announced his retirement, but today's news has seen him become a favourite for next in line.

In a note to staff, Ballmer said Elop "will be coming back to Microsoft", but will be leading an expanded Devices team. Another favourite as Ballmer's replacement, Julie Larson-Green, will join Elop's team once the deal closes, and "will work with him to shape the new organisation", said Ballmer.

Several key engineering leaders will join the software giant from Nokia and will report to Elop, and the duo's marketing teams will be pooled and run by Tami Reller, Microsoft's head of global marketing.

Outgoing boss Ballmer described the Nokia buy as a "bold step into the future".

"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," he said. "It's a bold step into the future - a win-win for employees, shareholders and consumers of both companies."

Better together?

TechMarketView's analyst Richard Holway said: "The future is mobile and Microsoft has failed to engage in that crucial market so far... In one sense, Microsoft needed Nokia as much as Nokia needed Microsoft. But in that age-old jibe, 'tying two bricks together doesn't make them float'."

He added that there is a good opportunity for the duo to address the mobile market for businesses, but warned it could alienate other hardware partners.

"Microsoft's success over the last 30 years had been built on being agnostic. Its software powered Dell, HP and other hardware platforms. How will they now regard a Microsoft with a substantial hardware wing?"