By Sven Grundberg and Jai Krishna
Unable to solve a tax dispute with Indian authorities, Nokia
Corp. on Thursday said it is unlikely that it would be able to
include a massive phone plant in India in a wider deal to transfer
its phone business to Microsoft Corp.
Nokia and Microsoft expect to formally conclude the transfer,
valued at 5.4 billion euros ($7.5 billion), on April 25, and the
fate of the 8,000-employee phone plant in India's southern state of
Tamil Nadu has been a question mark.
On Thursday, Nokia spokesman Brett Young said there is a "very
strong likelihood" that it won't be able to include the factory in
the wider deal. Mr. Young noted that there is little time before
the deal closes, and that it would be "surprising" if the issue was
resolved before Friday.
The factory, which produces more than a dozen basic Nokia phone
models including some in its Asha range, has been frozen by Indian
authorities since late last year. The Indian tax department alleges
that the Finnish company has wrongfully claimed tax exemptions on
software exports. Nokia, meanwhile, disputes the claim.
Excluding the factory from the transaction won't affect the
commercial terms of Nokia's deal with Microsoft, Nokia has said.
Including the Indian plant, approximately 32,000 Nokia employees
were slated to be transferred to Microsoft.
In the event the factory isn't included in the larger deal with
Microsoft, Nokia has said it would be forced to enter into a
service agreement with Microsoft to continue to make phones for the
company during "a transitional period."
Two people familiar with the development said Nokia has already
offered Microsoft a services agreement, under which it would
continue to make phones for Microsoft for a year, even as it is
talking to the Indian authorities to sort the dispute.
Microsoft and Indian tax officials weren't immediately available
to comment.
Earlier this week, Microsoft said it has made a few adjustments
to the original terms of the Nokia transaction, and that it
wouldn't be taking over a smaller Nokia manufacturing facility in
Masan, South Korea, which is involved in the production of Nokia's
smartphones. Microsoft requested a change in the transaction to
exclude the 200-employee factory "due to excess capacity," a Nokia
spokesman said.
Write to Sven Grundberg at sven.grundberg@wsj.com and Jai
Krishna at jai.krishna@wsj.com
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