The High Cost of Stephen Elop as Microsoft’s Next CEO

Over this labor day weekend I was working on an editorial analyzing some of the implications of getting Stephen Elop onboard as Microsoft’s next CEO.  Spending time with family kept me quite busy and I never quite finished it as early as I had intended.  And then this morning I get to work, I see a message from Pradeep, BOOM, Microsoft has acquired Nokia.  Well I hate for my editorial to go to complete waste, so I’m going to share what my thoughts were before the announcement and publish part of it anyways.  I made some incorrect assumptions in the editorial I was writing, but I got some things correct too.  Here it is for those interested in its rough, unfinished form:

Stephen Elop.  Stephen Elop.  Stephen Elop.  Now say it with me, Stephen Elop.  I have not gone a two seconds, since Microsoft CEO Steven Ballmer’s retirement announcement, without hearing the Nokia CEO’s name uttered as a possible replacement. 

And I certainly agree Elop would be a great asset for Microsoft.  He has spent the last three years focused solely on mobile and the challenges that come with the territory.  He has also spent time at a cash strapped company that is struggling to survive and forced to innovate.  Elop has probably gained rare and priceless experience that few other people would have.

A question I see seldom asked is does Elop even want to be CEO of Microsoft?  We know Elop is very ambitious: having previously served (briefly) as CEO of Macromedia, moving on to serve in senior executive positions after the acquisition by Adobe, then jumping ship to Microsoft after being personally recruited by Ballmer to replace Jeffrey Raikes, and then finally to serve as President & CEO of Nokia.  Even if we assume Elop wants the job, does he have a vision for the company, can he fix the marketing problem, and he successfully change and re-charge the culture at Microsoft?  What would Elop’s “burning platform” memo say at Microsoft? 

Lets ignore the above questions and assume that Bill Gates, Steve Ballmer & the board have decided they want Stephen Elop as CEO.  They only realistic way Elop would come on board is through an ‘acqui-hire.’  That is to say, Microsoft will need to buy Nokia to gain Stephen Elop as CEO.  Large companies often do this by buying start-ups to continually gain good talent.  However, this is rarely done on a larger scale.  Just as a side note I totally disagree with Kara Swisher that Ballmer is a “lame-duck” CEO, he’ll make any deal happen that he really wants to. I’ll have more on this with an upcoming Ballmer story.

So how much would it cost to acquire Nokia?  Let’s do some quick math here.  There are currently ~3.75 billion shares of outstanding Nokia stock (total amount of common stock owned by investors).  Current share price is around ~$4.00 a share.  This puts the total market cap (or worth) of the company around $15 billion (3.75 billion x $4 per share).  Therefore, at a minimum it would cost Microsoft $15 billion to purchase the entire company.  I assuming, Microsoft will not have to pay a premium on the share price since the company is struggling and continues to burn through cash.  In addition, Microsoft has paid Nokia nearly a billion dollars a year since they signed their agreement in 2011; that goodwill may be taken into account.

Now Nokia has nearly ~100,000 employees and some of that is related to Nokia-Siemens, manufacturing employees (not as much outsourcing), and Navteq (mapping services).  I doubt Microsoft really wants to acquire the whole company and near double the size of Microsoft, but they may not really have a choice.  They may have to acquire the whole company and then sell off the parts they do not want later, as with other acquisitions.

Another big problem will be EU regulations and taxes.  There were rumors that Microsoft was going to acquire Nokia earlier this year but it fell through due to tax concerns.  I think this is quite plausible, as Microsoft has always done all it can do to pay the least amount of taxes possible.  Right now Microsoft has over $60 Billion sitting offshore.  They could probably use some of that money for an acquisition without too many tax problems.  Nevertheless, it cannot avoid added regulations from the EU, which have always been a massive headache for Microsoft.

Wall Street is another problem.  They are not going to be happy about a major acquisition from Microsoft.  A couple billion dollars spent in an acquisition is a couple billion that could have gone to a stock buy-back program or special dividend.  Adding nearly a ~100k employees is not going to go over well at all.  There is also a difference of when Wall Street realizes trends and when enthusiasts see trends.  I think we all saw the dominance of Android coming from a mile away about two years ago.  But this did not affect Apple’s share price until a few months ago.  Similarly acquiring Nokia signals to Wall Street how important mobile is for Microsoft.  At the same time, it also highlights how badly Microsoft is doing in the mobile space.  Ballmer’s retirement announcement bumped up the stock 7%, I would predict that a Nokia acquisition announcement bumps down the stock 7%.

I not entirely convinced that Stephen Elop is the best person for CEO of Microsoft.  At the same time, I honestly do not know if I could name anyone better.  In many ways, it is similar to the position that Ballmer has been in.  For as long as I have been covering Microsoft people have been clamoring for Ballmer to step down, but without a realistic replacement that would have done significantly better than Ballmer has.

When did you think Microsoft was going to acquire Nokia? Earlier, later, never? Share your thoughts in the comments below.

  • arrow2010

    Where do you get this $100 billion offshore crap? Microsoft has a total of $78 billion in cash according to their last P&L statement.

    • Prodigy1
    • surilamin

      You are correct, I’ll update reflect this. As I said, this was unfinished, and I had not fact checked everything. I mixed up Apple’s and Microsoft’s offshore cash numbers.

    • Guest

      Congratulations on adding something of value for once instead of just trolling.

  • Bugbog

    Intresting! :) Got quite a number of things right, and slightly off on others.

  • Tirinti

    The problem with Elop is, that he doesn;t know what a smartphone is. He mistakes it with a camera.
    I’m worried that he could mistake OS with photo editing software and if he become MS CEO, he will only upgrade Paint in order to compete with Photoshop.

    • tomakali

      cool review of Elop
      btw, he has a lot more than that…
      and more
      Not just camera pro app(which is awesome btw)

      • Tirinti

        In Poland Nokia Maps are outdated and with very few POIs and because they are for free proper navigation companiest don’t want to release theier maps for WP.
        Microsoft should rather release theier Music and Video app globaly.
        And there are some exclusive games but they aren’t developed by Nokia, rather blocked for other OEMs.
        I want smartphone with 720p and microSD slot. I don’t need fancy jet big camera in my smartphone, because if I want a good photo I’m using DSLR.
        All highend Lumias are focused on takeing photos and all theier ads are showing some hipsters taking photos.

    • Jorge Miguel

      Which Elop are you talking about?

    • Yuan Taizong

      Honestly I’d love to see Microsoft Paint upgraded, so we won’t see Apple’s Macintoshes being the ONLY computers used in pretty much ANY film or series, not just in the U.S. go to any European or Asian country, and literally everything is done with Macs, even though Windows is both better and more popular.

      Upgrading Microsoft Paint, Windows Photo Viewer, Windows Photo Gallery and Windows Movie Maker should be a priority, and better integrate these into Windows Phone as well.

      • FateStayNight

        They already did. Freshpaint, photo app, skydrive, movie moments. Try them out, they’re awesome.

      • Emily the Strange

        hmm in the sector i work, I see mostly Windows based machines. even see Windows only program used by thousands of people like 3dsmax, but most of the time they use Windows machines.
        obviously I dont know where you live or what, but you know, visual effects and cgi are used more and more in movies and tv, even for a part that you wouldnt think it would be cgi but i still see more and more people using Windows.
        same with Game design, no matter how cool unity was (never liked it much though) they had to release a version for Windows, also UDK if probably going to be Windows only forever for example. and Im not talking about people from US, I know some, but also UK and Spain, turkey, and other countries, and they use Windows. I even know a president of a 3d software that has a surface Tablet.
        and while i obviously know people who use Apple computers for the same i do, or just they have to for the pipeline, its not as much as the numbers I see Windows based machines. of course thats my sector, maybe yours is different :) but of course they are my personal experiences.

    • Ikoyi Lazy

      funniest shit ever

  • tomakali

    Elop should be CEO of Yahoo
    and Joe Belfiore should be CEO of Micromax
    and Balmer should be CEO of Amazon
    and I should be CEO of Mars ;p

  • Mikado_Wu

    I been expecting Microsoft to purchase Nokia, ever since I bought into their Stock last summer at $2.10.
    Since becoming a Nokia 920 owner (first Nokia), I started NOT wanting MS to buy them due to the wonderful experience Nokia has provided.
    That said, I was sitting with my boss last Thursday Night in the Nose bleed section James Stadium watching the Redskins crush the Bucs, and I told him, MS will buy Nokia in the next 2 weeks, and Elop would be named CEO in 8.

    • Yuan Taizong

      Microsoft can make wonderful software and hardware, just ask anyone with an Xbox.

      • Mikado_Wu

        you are right, I have 3 Xbox’s.

  • Yuan Taizong

    I personally hope that the next C.E.O. will buy the likes of Yahoo! and A.O.L. because they still have a large ”untapped” user demographic Microsoft can make usage of.

  • Frederick Edwards

    Back in the day, I loved Macromedia software (ex: Flash, Dreamweaver, Director, Authorware, Freehand) and I was always sad that its design software was separated from Adobe’s (ex: Photoshop, Illustrator, InDesign, Premiere), until that fateful day when Stephen joined as CEO of Macromedia. Three months later, my two favourite design software companies were combined—my designer’s dream come true.
    Now my two favourite tech products (Nokia’s phone division + Microsoft’s Windows) are joined by the same man, what are the odds?

  • Mark

    Stephen Elop was a Trojan Horse from Microsoft from the beginning. It’s obvious ole Rum Belly (Ballmer) knew what he was doing all along!

  • FateStayNight

    heard the sound of Uh oh across boardrooms of HTC and Samsung. Or
    maybe it was holy f*&ck! They’ve been had. They’re now between a
    rock and 2 other hard places. They couldn’t develop an IOS device as
    apple does not let anyone else use it so they went for android. Windows
    phone OS comes along, they’re so invested in android and developing for
    another platform would mean more costs, they want to disuade but don’t
    want to piss off microsoft so they humor wp by making meh phones for
    the platform while waiting for it to die a supposed natural death.
    Against the odds, it survives and now is looking to explode in growth.
    Samsung is contently making mucho dinero with android while preparing a
    contingency plan with tizen. HTC is aimless and penniless. Continuous
    attacks on Microsoft’s rep creates a negative image for it which
    translates to slow adoption of the newly released OSs. Hedge fund
    managers sensing weakness, come to cash in like sharks, demanding that
    softy depart the devices game slavering in the mouth. Then further
    demands that it sell its spleen and kidneys. Balmer appears to concede
    by a resignation schedule and tying up one of the most vocal hedge funds
    in a deal. It appears that microsoft will now be playing in the B
    leagues in the future by conceding then…. BOOM. Nokia acquisition!
    If they waited for the hedge fund manager to come to a board meeting
    before the acquisition, they most likely would have torpedoed it, so
    they neatly tie him up first in a no-contest deal then hit him over the
    head with the acquisition. There’s no backing away from this one. For
    better or worse, the plan for a devices and services company is underway
    despite the various secret hands of google and apple to prevent the

    Apple makes IOS iphones, Google + Motorola makes android phones, and now
    Microsoft + Nokia will create WP phones. 3 Really Hard Rocks there!
    Samsung, I hope your Tizen is ready coz you’re going to need it. No
    wonder your astroturfing your developer conference all over the place.
    HTC – RIP.

  • Haymo

    Elop for CEO!

  • Guest

    Your analysis turned out to be very accurate, albeit that they didn’t end up buying the whole company. Wall Street hates it and the entire Ballmer stock gain has now been erased.

  • Rikikrik

    Despite all the criticism, Microsoft is creating it’s own future, which is a really good thing. Most people we’re very sceptical of Skypes acquisition by Microsoft. But Skype’s accounts grew from 800 million to 1.2 Billion after one year under Microsoft. 35% of international calls are Skype calls. Yammer grew 30% after one year under Microsoft. Both Skype and Yammer are world leaders in their respective fields. The acquisition of Nokia was a wise move. Instead of paying Nokia billions each year up to 2015, it is financially wise to acquire Nokia before the term of the deal ends and while the share price is low. Developing and producing phones is now a lot cheaper and profitable for Microsoft. Microsoft is now the second largest phone company in the world behind Samsung. Integrating Microsoft services in Asha phones and other feature phones gives consumers in upcoming markets the opportunity to experience the WP ecosystem early on. Furthermore it gives Microsoft the added muscle to compete with Android in the cheapes phone segment. I am also eager to know what this means for Microsoft’s mobile advertising business, but I think it will work positively in sales and profits. While Apple’s and Android market smartphone market share is slowing, WP is still growing strong. I am sure that justlike Skype and Yammer, WP will grow niceley, since businesses can have total integrated mobile solution when it comes to Windows devices and services.