Microsoft buys Nokia smartphone division for £4.6bn

Microsoft is buying Nokia phone business and patents for $7.2 billion (£4.63bn) in an attempt to mount a more formidable challenge to Apple and Google in the mobile market.

Nokia, based in Espoo, Finland, and Microsoft have been trying to make inroads in the smartphone market as part of a partnership forged in 2011. Under the alliance, Nokia's Lumia smartphones have run on Microsoft's Windows software, but those devices haven't emerged as a popular alternative to the iPhone or an array of Android-powered devices spearheaded by Samsung Electronics' smartphones and tablets.

Microsoft is betting it will have a better chance of narrowing the gap if it seizes complete control over how the mobile devices work with its Windows software.

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

The acquisition is being made at the same time that Microsoft is looking for a new leader. Just 10 days ago, Ballmer, 57, announced he will relinquish the CEO reins within the next year in a move that many analysts regarded as Microsoft's tacit admission that the company needed an infusion of fresh blood to revitalize itself.

The deal could fuel speculation that Nokia's CEO, former Microsoft executive Stephen Elop, will emerge as a top candidate to succeed Ballmer. Elop will step aside as Nokia's president and CEO to become executive vice president of Nokia devices and services in preparation for joining Microsoft once the acquisition closes. Chairman Risto Siilasmaa will stay in his current role and assume the duties of interim CEO.

Microsoft hopes to complete the deal early next year. If that timetable pans out, about 32,000 Nokia employees will transfer to Microsoft, which currently has about 99,000 workers.

The proposed price consists of 3.79 billion euros (£3.21bn) for the Nokia unit that makes mobile phones, including its line of Lumia smartphones that run Windows Phone software. Another 1.65 billion euros (£1.4bn) will be paid for a 10-year license to use Nokia's patents, with the option to extend it indefinitely.

It will represent the second most expensive acquisition in Microsoft's 38-year history, behind the £5.47 billion purchase of Internet calling and video conferencing service Skype. Tony Bates, who ran Skype, is also regarded as a potential successor to Ballmer.

The money to buy Nokia's smartphones and patents will be drawn from the nearly $70 billion (£45bn) that Microsoft held in overseas accounts as of June 30.

Nokia shares surged as much as 47% on news of the deal.