Software giant Microsoft (Nasdaq: MSFT) announced over the weekend that it would buy Finland-based Nokia's mobile-phone business for $7.2 billion.
Microsoft claims the deal will boost its earnings. But Nokia hasn't made a profit in three years. I don't think the transaction is a good idea but we'll just have to see how it plays out
It shouldn't hurt Microsoft's two most important divisions: Microsoft Office and Server & Tools. Both divisions contain numerous billion-dollar franchises, some of which are growing annual sales at double-digit rates.
Further, it won't prevent Microsoft from gushing free cash flow, raising its dividend, buying back shares, having a great balance sheet, earning thick profit margins, or generating high returns on shareholder equity; all the financial clues we look for in a global dominating dividend grower.
Microsoft shareholders can find more information about the acquisition in a PowerPoint presentation here.
Microsoft also announced it'll offer a seat on its board of directors to the president of an investment firm called ValueAct Capital. ValueAct owns $2 billion of Microsoft stock and it shares our view that Microsoft is a great software company for businesses rather than independent consumers. I consider this a good sign.
Our perceptions and advice on Microsoft remains the same:
BUY Microsoft (Nasdaq: MSFT) up to $34 a share.