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Citing "ongoing share growth and the synergies across marketing, branding and advertising," Ballmer said Microsoft expects the deal to be accretive to "adjusted earnings per share" starting in fiscal year 2015. He said the deal provides "significant long-term revenue and profit opportunities" for Microsoft shareholders.
Nokia said the transaction is expected to be "significantly accretive to earnings," providing what it called a "solid basis for future investment" in its continuing businesses.
The deal, however, is sure to face intense scrutiny by Nokia and Microsoft shareholders, who have expressed frustration at the ability of both companies to compete with Apple and Samsung.
Elop, who left Microsoft in September 2010 to take the top Nokia job, made a big bet in February 2011 to produce Nokia phones based on Microsoft's Windows 8 operating system. But it has failed to pay off, with Windows phones accounting for only 3.7 percent of smartphone shipments in the second quarter, according to research firm IDC.
Ballmer, meanwhile, has been taken to task by investors for not making bigger gains in the consumer-driven IT era dominated by smartphones and tablets.
In the wake of the news that Ballmer was retiring, Microsoft shares surged 7 percent and the company's market value soared a whopping $18 billion from $269.81 billion to $288.05 billion.
On Friday, Microsoft said it had inked a "cooperation agreement" with ValueAct Capital, a San Francisco-based investment firm that owns about 0.8 percent of Microsoft's outstanding shares.
Under terms of the agreement, Microsoft will give ValueAct Capital President Mason Morfit the option of joining its board of directors at the first quarterly board meeting after its annual shareholders meeting, which takes place Nov. 19.
Nokia Chairman of the Board of Directors Risto Siilasmaa, who is becoming Nokia's interim CEO, called the deal "an important moment of reinvention" for Nokia from what he called a "position of financial strength.
"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 Siilasmaa. "Additionally, the deal offers future opportunities for many Nokia employees as part of a company with the strategy, financial resources and determination to succeed in the mobile space."
Elop, the former head of Microsoft's successful Office division who faces the difficult task of integrating Nokia into the Microsoft fold, said the deal will build on the Nokia-Microsoft partnership, bringing together "the best of Microsoft's software engineering with the best of Nokia's product engineering, award-winning design, and global sales, marketing and manufacturing."
In an open letter to consumers, Elop and Ballmer said the two companies will "continue to build the mobile phones you've come to love, while investing in the future -- new phones and services that combine the best of Microsoft and the best of Nokia. Nokia and Microsoft are committed to the next chapter. Together we will redefine the boundaries of mobility."