Microsoft to acquire Nokia handset business in £4.6bn deal

Activist fund manager ValueAct Capital Management, which has been offered a board seat, is among those concerned with Ballmer's leadership and his attempts to plough headlong into the lower-margin, highly competitive mobile devices arena. The San Francisco-based fund, which manages about $12 billion (7.71 billion) for clients, owns 0.8 per cent of Microsoft's shares.

Others applauded Ballmer's aggressive gambit.

"Microsoft cannot walk away from smartphones and the hope that other vendors will support Windows Phone is fading fast. So buying Nokia comes at the right time," said Carolina Milanesi, an analyst at Gartner.

"In today's market it is clear that a vertical integration is the way forward for a company to succeed. How else could Microsoft achieve this?"

As part of Microsoft, Elop will head an expanded Devices unit. Julie Larson-Green, who in July was promoted to head a new Devices and Studios business in Ballmer's reorganization, will report to Elop when the deal is closed.

Analysts say Elop's bold bet in 2011 to adopt Microsoft's untested Windows Phone software has yet to pay off.

"It's a bold step into the future a win-win for employees, shareholders and consumers of both companies," Ballmer said in a statement.

"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."

Nokia said in a statement it expected that, apart from Elop, senior executives Jo Harlow, Juha Putkiranta, Timo Toikkanen, and Chris Weber would transfer to Microsoft when the deal is concluded. It did not say what roles they would take there.

Nokia board chairman Risto Siilasmaa would take over CEO duties while the Finnish firm looked for a new CEO, it said.

The deal is expected to close in the first quarter of 2014, subject to approval by Nokia shareholders and regulators.

"Questions had been raised as to why Microsoft decided to partner Nokia in the smartphone market while purporting to not treat any other vendor less favourably. Today's announcement goes to show that they were onto something: Nokia's dominance of the Windows phone market suggests that other vendors lost interest," said Warwick Business School's Assistant Professor of Strategy Ronald Klingebiel.

"There were also questions over Nokia's rationale for dropping one unsuccessful Linux system for another unsuccessful proprietary system. In a winner-takes-all market with substantial network effects, especially as regards appstore ecosystems, a distant third challenger proved hardly the boost to the business Nokia was hoping for. Some people connected the dots and asked whether Microsoft was really preparing to take over Nokia. This is where we are today."

Just how exactly did Ballmer break the news to employees? Read the full text of his email to staff over the page.