Norkia is the creation of Scotia Capital analyst Gus Papageorgiou, who suggests in a research report there is "great merit" to a deal that would see Nokia fold its networks business into Nortel. The new entity, Norkia, would be 52%-owned by Nokia and would create the world's second largest GSM player behind Ericsson. Papageorgiou believes Norkia could generate $1.9-billion in synergies: $250-million from cost of goods sold, $750-million in R&D, $500-million in SG&A, and $340-million in tax savings. As important, he believes Nokia shares could jump 35% to $28.59 because it would become a pure wireless device maker by spinning off a business with lower margins. Meanwhile, Norkia could jump 93% to $4.58 by becoming a larger, more profitable business than Nortel. Of course, there could be regulatory, cultural and management issues. But Papageorgiou believes Nokia and Nortel have few options other than to pursue a deal. For Nokia, a deal with Ericsson is out because Ericsson doesn't need Nokia's networking business; a deal with Alcatel is out because it's got together with Lucent, and a deal with Motorola is out because it's an arch-enemy in the handset business. This leaves Nortel and Siemens' communications business. Papageorgiou believes Nortel is a better fit for Nokia because it is "the best opportunity to recognize cost synergies and [it] is the easiest to execute". As for Nortel, Papageorgiou said it has to pursue a deal unless it can figure out a way to "prop up its market cap" – something Nortel CEO Mike Zafirovski has failed to achieve since he came on board in November despite the management team he has put together, the confidence he instills in investors, and the strategic plan he recently unveiled. It will, no doubt, be interesting to see what Mike Z. thinks about Norkia when Nortel holds its AGM next month. By the way, Norkia.com is already owned by a pop-up software maker so Nokia and Nortel may have to come up with another name.
The Story of Norkia
Norkia is the creation of Scotia Capital analyst Gus Papageorgiou, who suggests in a research report there is "great merit" to a deal that would see Nokia fold its networks business into Nortel. The new entity, Norkia, would be 52%-owned by Nokia and would create the world's second largest GSM player behind Ericsson. Papageorgiou believes Norkia could generate $1.9-billion in synergies: $250-million from cost of goods sold, $750-million in R&D, $500-million in SG&A, and $340-million in tax savings. As important, he believes Nokia shares could jump 35% to $28.59 because it would become a pure wireless device maker by spinning off a business with lower margins. Meanwhile, Norkia could jump 93% to $4.58 by becoming a larger, more profitable business than Nortel. Of course, there could be regulatory, cultural and management issues. But Papageorgiou believes Nokia and Nortel have few options other than to pursue a deal. For Nokia, a deal with Ericsson is out because Ericsson doesn't need Nokia's networking business; a deal with Alcatel is out because it's got together with Lucent, and a deal with Motorola is out because it's an arch-enemy in the handset business. This leaves Nortel and Siemens' communications business. Papageorgiou believes Nortel is a better fit for Nokia because it is "the best opportunity to recognize cost synergies and [it] is the easiest to execute". As for Nortel, Papageorgiou said it has to pursue a deal unless it can figure out a way to "prop up its market cap" – something Nortel CEO Mike Zafirovski has failed to achieve since he came on board in November despite the management team he has put together, the confidence he instills in investors, and the strategic plan he recently unveiled. It will, no doubt, be interesting to see what Mike Z. thinks about Norkia when Nortel holds its AGM next month. By the way, Norkia.com is already owned by a pop-up software maker so Nokia and Nortel may have to come up with another name.