Nokia's Share Buyback: A Strategic Move to Enhance Shareholder Value

Nokia Corporation, a global leader in telecommunications, has announced the repurchase of its own shares on 2 January 2025. This strategic move aligns with the company's long-term financial strategy and is expected to have a positive impact on its share price and market capitalization. In this article, we will explore the reasons behind Nokia's share buyback program, its expected impact on the company's financials, and how it compares to similar initiatives by its competitors.

Nokia's Share Buyback Program: A Strategic Move

On 22 November 2024, Nokia announced a share buyback program to offset the dilutive effect of new Nokia shares issued to the shareholders of Infinera Corporation and certain Infinera Corporation share-based incentives. The program targets to repurchase 150 million shares for a maximum aggregate purchase price of EUR 900 million. The repurchases started on 25 November 2024 and are expected to end by 31 December 2025.

The primary objective of the share buyback program is to reduce Nokia's capital and mitigate the dilutive impact on existing shareholders. By repurchasing and cancelling these shares, Nokia aims to maintain shareholder value and ensure that the acquisition of Infinera does not dilute the value of its existing shares.

Expected Impact on Nokia's Financials

Nokia's share buyback program is expected to have a positive impact on the company's financials, particularly on earnings per share (EPS) and return on equity (ROE). By reducing the number of outstanding shares, the company's earnings are spread across a smaller base, leading to an increase in EPS. This can make the company's shares more attractive to investors, potentially driving up the share price.

Additionally, the share buyback program can influence Nokia's debt-to-equity ratio and overall financial leverage. The repurchase of shares reduces the number of outstanding shares and thus increases the equity portion of the company's capital structure. This can lead to a decrease in the debt-to-equity ratio, indicating a lower level of financial leverage.



The cancellation of repurchased shares can also impact Nokia's future dividend policy and payout ratio. With a reduced number of outstanding shares, the earnings per share (EPS) can increase, potentially leading to a higher dividend payout. This can help Nokia maintain a stable or growing dividend per share, as per its dividend policy.

Comparing Nokia's Share Buyback Program with Competitors

To compare Nokia's share buyback program with similar initiatives by its competitors in the telecommunications industry, we can look at the programs announced by Ericsson and Cisco.

1. Ericsson's Share Buyback Program (2021-2023):
- Ericsson announced a share buyback program in 2021, targeting to repurchase SEK 10 billion worth of shares over a two-year period (2021-2023).
- The program aimed to offset the dilutive effect of share-based incentives and to return excess cash to shareholders.
- As of December 31, 2022, Ericsson had repurchased SEK 9.7 billion worth of shares, representing approximately 10% of the company's shares outstanding.
2. Cisco's Share Repurchase Program (2021-2024):
- Cisco announced a share repurchase program in 2021, authorizing the repurchase of up to $15 billion of its common stock over a four-year period (2021-2024).
- The program aimed to offset the dilutive effect of share-based compensation and to return excess cash to shareholders.
- As of January 23, 2023, Cisco had repurchased approximately 275 million shares, representing approximately 12% of the company's shares outstanding.

Comparing Nokia's share buyback program with its competitors, we can see that Nokia's program is comparable in terms of the number of shares targeted for repurchase. However, the aggregate purchase price of Nokia's program is lower than Cisco's, but higher than Ericsson's. It's essential to consider the exchange rates and the market capitalization of each company to make a more accurate comparison.

In conclusion, Nokia's share buyback program aligns with its long-term financial strategy by offsetting the dilutive effect of the Infinera acquisition, returning cash to shareholders, and maintaining a strong balance sheet. The program is expected to have a positive impact on Nokia's share price, market capitalization, EPS, ROE, debt-to-equity ratio, and overall financial leverage. While Nokia's program is comparable to those of its competitors, the specific details and aggregate purchase prices differ. As Nokia continues to execute its share buyback program, investors should monitor the company's financial performance and the potential impact on its share price and market capitalization.