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Microsoft's Nokia acquisition continues to look like a mistake

Microsoft is having a harder time buying Nokia than it expected, and that's reducing its value in the process.

Microsoft had hoped to finish buying up Nokia's Devices and Services business by this quarter. With the end of the quarter now just a few days away, that is now looking less likely, and more hurdles are emerging in Microsoft's way.

Microsoft and Nokia announced the plans back in September. It was later revealed that the deal was more or less forced on the company by then-CEO Steve Ballmer, who threw a monumental temper tantrum and threatened to quit if the board didn't OK the $7.2 billion purchase.

So far, the deal has cleared regulatory approval in 15 nations, including the U.S. and Finland. But Asia is proving a sticking point. First, Nokia is caught up in a tax dispute in India. The Indian Supreme Court has ordered Nokia to pay a 35 billion rupees ($572.5 million) guarantee before it sells its Chennai plant, one of its biggest, to Microsoft.

The Chennai plant is also the source of a $414 million sales tax bill. India alleges that handsets manufactured there were not exported as they were supposed to be, but were instead sold domestically in India.

Then there's China. Nokia owns patents for key wireless technologies used by many telecommunication companies, and Google, Samsung, and Chinese smartphone makers have been making noises that the Nokia/Microsoft deal will result in higher patent licensing fees.

Nobody is saying the merger is threatened, and neither party is rumored to be giving up in the least. But if they have to make concessions on royalties, that hurts the value proposition of owning the company. Plus, a billion dollars in fines is nothing to sneeze at, even for Microsoft.

China has tremendous pull. It got an exemption from the Windows XP end of life support, after all. If Chinese handset makers scream loud enough, Nokia might be forced to bend backwards, diminishing its value in the process.

I've said it before, I'll say it again - this was a poorly thought-out deal and a mistake. Ballmer's foot-stomping tantrum shows I wasn't alone in that thinking. It's a pity the board didn't call his bluff.

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