Microsoft buys Nokia's phone unit

Microsoft is buying Nokia's devices and services business - and getting access to the company's patents - for a total of €5.4 billion in an effort to expand its share of the smartphone market.

The corporations announced the deal late on Monday, saying that Microsoft will pay €3.8 billion for the Nokia unit that makes mobile phones, including its line of Lumia smartphones that run Windows Phone software.

Microsoft is also paying €1.6 billion for a 10-year licence to use Nokia's patents, with the option to extend it indefinitely.

"We are very excited about the proposal to bring the best mobile device efforts of Microsoft and Nokia together," Steve Ballmer, Microsoft CEO, said in a memo to employees.

"We are receiving incredible talent, technology and IP [intellectual property]."

Nokia was once a leader in mobile phones, but the firm's sales fell 24% in the three months to the end of June from a year earlier.

It sold 53.7 million mobile phones during the quarter, down 27% on last year.

However, sales of its new Lumia phones, which run a Microsoft operating system, rose during the period.

Microsoft said it is acquiring Nokia's Asha brand of low to mid-level smartphones and will license the Nokia brand for current Nokia mobile products.

Microsoft, which is based in Redmond, Washington, said it will draw from its overseas cash resources to fund the transaction.

When the deal closes in early 2014, about 32,000 Nokia employees will transfer to Microsoft, the companies said.

Nokia, based in Espoo, Finland, said Stephen Elop will step aside as president and CEO to become executive vice president of Nokia devices and services.

Risto Siilasmaa, Nokia chairman, will stay in his current role and assume the duties of interim CEO.

Elop is expected to join Microsoft at the close of the transaction, along with several Nokia vice presidents.

Nokia plans to hold a news conference on Tuesday morning in Finland to discuss the deal.