Microsoft has bought all of Nokia's devices & services and will license its patents and mapping services.
Previously, both had a partnership for Nokia's Lumia phone which began in February 2011. The acquisition will involve the bulk of Nokia's consumer facing business.
Microsoft will pay EUR 3.79 billion to purchase substantially all of Nokia's devices & services business, and EUR 1.65 billion to license Nokia's patents, for a total transaction price of EUR 5.44 billion in cash. Microsoft will draw upon its overseas cash resources to fund the transaction.
The entire transaction is expected to close in the first quarter of 2014. Previously, much speculation had been around who would buy struggling Nokia.
Approximately 32,000 people are expected to transfer to Microsoft, including 4,700 people in Finland and 18,300 employees directly involved in manufacturing, assembly and packaging of products worldwide. The operations that are planned to be transferred to Microsoft generated an estimated EUR 14.9 billion, or almost 50 percent of Nokia's net sales for the full year 2012, said a release from Microsoft.
Microsoft is also acquiring Nokia's Smart Devices business unit, including the Lumia brand and products.
For its Mobile Phones business unit, Microsoft will acquire the Asha brand and will license the Nokia brand for use with current Nokia mobile phone products.
Nokia will continue to own and manage the Nokia brand.
Microsoft also announced that it has selected Finland as the home for a new data center that will serve Microsoft consumers in Europe. The company said it would invest more than a quarter-billion dollars in capital and operation of the new data center over the next few years, with the potential for further expansion over time.
"Bringing these great teams together will accelerate Microsoft's share and profits in phones, and strengthen the overall opportunities for both Microsoft and our partners across our entire family of devices and services," said Steve Ballmer, Microsoft chief executive officer.
"After a thorough assessment of how to maximize shareholder value, including consideration of a variety of alternatives, we believe this transaction is the best path forward for Nokia and its shareholders," said Risto Siilasmaa, chairman of the Nokia Board of Directors and, following today's announcement, Nokia Interim CEO.
Nokia expects that Stephen Elop, Jo Harlow, Juha Putkiranta, Timo Toikkanen, and Chris Weber would transfer to Microsoft at the anticipated closing of the transaction, said the company.