Nokia-Microsoft merger delayed due to Asia hurdles

Nokia has been forced to delay completing the sale of its phone business to Microsoft as the mobile company continues to face regulatory and legal hurdles in Asia.

The Finnish firm said on Monday that it expects to close the deal in April 2014, after previously stating that the sale of its devices and services business to Microsoft would be finished in the first quarter of this year. Analysts believe the group may need to offer further concessions.

Nokia has received regulatory approvals from the European Commission and the U.S. Department of Justice, the company said in a statement on Monday, but approvals from certain antitrust authorities in Asia are still pending.

Microsoft said in an official blog post that the technology giant is "nearing the final stages of our global regulatory approval process".

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Henrik Kettunen | Bloomberg | Getty Images

In September 2013, Microsoft agreed to buy Nokia's phone business for 5.4 billion euros ($7.2 billion) as the firm attempts to challenge the dominance of smartphone leaders Apple and Samsung. Nokia is selling the loss-making arm of its company to focus on network equipment.

Merger threatened?

But six months on the deal is still not closed, mainly due to difficulties in Asia, fueling fears that further delays lie ahead.

Nokia is caught up in a tax dispute in India. Tamil Nadu's tax department sent a 300 million euro sales tax bill to the Finnish mobile company, alleging that the handsets manufactured in its Chennai factory were not exported but instead sold domestically in India. Nokia said the claim was "absurd" in a statement on Friday.

This comes after the Indian Supreme Court ordered Nokia to pay a 35 billion rupees ($572.5 million) guarantee before it offloads its Chennai plant, one of its biggest, to Microsoft along with other assets.

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But analysts say that while this could cause further delays to closing the Microsoft deal, a total scrapping of the plan is unlikely.

"At this juncture, we believe Nokia is mulling either closing the Chennai (factory)…and moving production to Hanoi, Vietnam…or running the Indian (factory) for Microsoft in a contract manufacturer capacity," Citi said in a note on Friday.

Tech Yeah! Nokia's cheap smartphone
Tech Yeah! Nokia's cheap smartphone

"Regardless of the outcome, we continue to believe that the Indian tax dispute does not threaten the completion of the merger."

Further concessions

As well as troubles in India, Nokia is also facing issues in China. Nokia owns the patents for key wireless technologies used by many telecommunication companies. In China, Google, Samsung and Chinese smartphone makers have expressed concerns that the Nokia-Microsoft deal will results in higher patent licensing fees.

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Sami Sarkamies, senior analyst at Nordea Markets, said that Nokia will likely need to offer further concessions to resolve the dispute pushing the completion of the deal further out.

"Nokia will have to offer concession because if they don't do anything not much will change. The danger from Nokia's perspective is that the longer this drags out, the bigger concessions Nokia will have to give," Sarkamies told CNBC.

—By CNBC's Arjun Kharpal. Follow him on Twitter @ArjunKharpal

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