Nokia's Strategic Share Cancellation: A Move Towards Long-term Growth

Nokia Corporation, a leading telecommunications and technology company, recently announced the cancellation of 157.6 million repurchased shares. This strategic move, made on December 4, 2024, is a testament to Nokia's commitment to long-term value creation for shareholders. In this article, we will delve into the implications of this decision on Nokia's capital structure, earnings, and investor sentiment.

The cancellation of 157,646,220 Nokia shares, held by the company, does not directly affect the company's share capital nor total equity. However, it does decrease the number of treasury shares held by Nokia from 209,702,510 to 208,160,941. This move signals a strategic shift in Nokia's shareholder management approach, indicating a focus on efficient capital allocation.



The cancellation follows the completion of a share buyback program launched in March 2024, where Nokia repurchased shares at an average price of EUR 3.81 per share. This move reflects Nokia's confidence in its financial health and future prospects, as the company reduces its unrestricted equity by EUR 600 million. The cancellation does not affect Nokia's share capital or total equity, demonstrating the company's ability to manage its capital structure effectively.

Nokia's decision to cancel repurchased shares is likely to have a positive impact on its future earnings per share (EPS). As the cancellation reduces the number of outstanding shares, EPS is expected to increase, assuming earnings remain constant. This can make Nokia's stock more attractive to investors, potentially boosting investor sentiment and stock price.

The cancellation, however, may have some tax implications. In the U.S., companies generally pay taxes on the repurchase amount when they cancel shares, akin to a capital gain. For Nokia, as a Finnish company, the tax treatment may differ. Finland has a corporate tax rate of 20%, so Nokia may face a tax liability of around €31.5 million (€157.6 million × 20%) on the cancellation. This tax burden should be factored into the overall analysis of the share cancellation's impact on Nokia's financials and shareholder value.



In conclusion, Nokia's cancellation of repurchased shares is a strategic move that signals the company's commitment to long-term value creation and efficient capital allocation. While the move may have some tax implications, the reduction in treasury shares is expected to have a positive impact on Nokia's EPS and investor sentiment. As investors, it is essential to evaluate such strategic decisions and their potential impact on our portfolios.

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