Microsoft Gets Nokia Units, and Leader

SEATTLE â€" Microsoft said it has reached an agreement to acquire the handset and services business of Nokia for more than $7.1 billion, in an effort to transform Microsoft’s business for a mobile era that has largely passed it by.

In a news release late Monday night, Microsoft and Nokia said 32,000 Nokia employees will join Microsoft as a result of the all-cash deal. Stephen Elop, the chief executive of Nokia and a former Microsoft executive, will rejoin Microsoft, setting him up as a potential successor for Steven A. Ballmer, who has said he will retire as chief executive of Microsoft within 12 months after a successor is found.

“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,” Mr. Ballmer said in a statement. “In addition to their innovation and strength in phones at all price points, Nokia brings proven capability and talent in critical areas such as hardware design and engineering, supply chain and manufacturing management, and hardware sales, marketing and distribution.”

Finland-based Nokia was once the mightiest company in the mobile phone business, but it has fallen out of place as the industry shifted to the era of the smartphone. Samsung and Apple divvy up nearly all of the profits in the global smartphone business now.

A megadeal between Nokia and Microsoft of the sort announced Monday night is something that pundits and analysts have speculated about for years, after Mr. Elop joined Nokia and signed a pact with Microsoft to standardize on the software company’s Windows Phone operating system.

The fortunes of the two companies in the mobile business have become closely intertwined since that agreement, but the deal has done little to boost either company’s position in the mobile business. Windows Phone accounted for only 3.7 percent of smartphone shipments in the second quarter, according to IDC.

While Microsoft still has enormous stockpiles of cash from its lucrative software business, there has been widespread speculation about how long Nokia could make it as an independent company, given how the spoils of the industry have gravitated to companies like Apple and Samsung.

In a statement, Risto Siilasmaa, chairman of Nokia’s board and Nokia’s interim chief executive, said that “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.”

A version of this article appears in print on September 3, 2013, on page B1 of the New York edition with the headline: Microsoft Gets Nokia Units, And Leader.

In a New Book, McKinsey & Co. Isn’t All Roses

“You can’t get fired for hiring McKinsey & Company.”

It is a refrain that has been whispered in the corner offices and halls of corporate America for years as a justification â€" or, at least, a rationalization â€" for hiring McKinsey, the world’s most influential management consulting firm. The secretive firm has been the go-to strategy consigliere for the globe’s top companies â€" from Procter & Gamble to American Express â€" as well as governments for more than a half century. Its influence is staggering. Consider this: More current and former Fortune 500 C.E.O.’s are alumni of McKinsey than of any other company.

So why has its advice, at times, turned out to be so bad?

It is often goes unmentioned, but McKinsey has indeed offered some of the worst advice in the annals of business. Enron? Check. Time Warner’s merger with AOL? Check. General Motors’s poor strategy against the Japanese automakers? Check. It told AT&T in 1980 that it expected the market for cellphones in the United States in 2000 would amount to only 900,000 subscribers. It turned out to be 109 million. The list goes on.

A thought-provoking new book called “The Firm: The Story of McKinsey and Its Secret Influence on American Business,” which comes out next Tuesday, offers a fascinating look behind the company’s success.

The book, by Duff McDonald, chronicles McKinsey’s rise but also raises an important question about it that is applicable to the entire netherworld of consultants, advisers and other corporate hangers-on: “Are they worth it or not?”

The answer amounts to hundreds of billions of dollars annually. Indeed, the army of advisers whispering into the ear of Verizon and Vodafone (its C.E.O. is a former McKinsey partner) over the weekend for their work on the $130 billion deal stand to make over $200 million alone. And, perhaps most important, they don’t have to give the money back if the deal turns sour.

Mr. McDonald’s book explores the remarkable and intriguing disconnect between the advice McKinsey offers and the ultimate results.

Stunningly, Mr. McDonald quotes a top McKinsey partner, Larry Kanarek, in a remarkably honest moment: “We are advisers, and it is management’s job to take all the advice they receive and make their own decisions. Not to say that McKinsey told me to do this.” He continued: “Whenever someone in McKinsey tells me they think they know how to run a company, I tell them to go do it. Because that’s not what we’re doing here.”

Really? I wonder if that is part of the sales pitch.

McKinsey has done a relatively good job of staying out of the press over its more than 80 years in business. (Perhaps the most notable recent attention was the criminal case against the firm’s former head, Rajat K. Gupta, who was convicted of insider trading.)

The main reason we don’t hear about McKinsey’s advice is that the firm prevents clients from disclosing the work that McKinsey does. According to Mr. McDonald’s book, the firm’s standard contract says, “The client agrees that it will not use McKinsey’s name, refer to McKinsey work, or make the Deliverables or the existence or terms of this agreement available outside its organization without McKinsey’s prior written permission.”

As a result, the firm doesn’t take credit for good work and it doesn’t take blame for bad work.

While Mr. McDonald spends considerable time in his book noting the firm’s successes, he also examines the firm’s failures, many of which have largely gone unreported on. Barry Ritholtz, the analyst and commentator, once asked, “Is McKinsey & Co. the Root of All Evil?”

Despite McKinsey’s image of being the Good Housekeeping Seal of Approval, it has worked on these doozies: McKinsey provided advice that some experts say led to the first too-big-to-fail bank failure in the 1980s, that of Continental Illinois Bank. McKinsey’s work for the National Health Service “failed to move the stultified British bureaucracy an inch,” Mr. McDonald wrote. It led General Motors to pursue a strategy in the 1980s that made it harder to compete with Japanese imports. It was on the scene after John Scully took over Apple from Steve Jobs to remake the company and it took Mr. Jobs’s return to turn the company back around.

And it worked with GE Capital just before the financial crisis, helping the unit become even more exposed to problems that ultimately nearly collapsed the financial system.

Mr. McDonald suggested that sometimes hiring McKinsey could be the cover needed to make an unpopular decision. “If, as C.E.O., you felt you needed to cut 10 percent of costs, but didn’t feel you were getting buy-in from your employees, the hiring of McKinsey generally got the point across quite clearly,” he wrote.

(It should be noted that The New York Times Company recently commissioned McKinsey to help with its strategy.)

In fairness, McKinsey’s involvement in some of the more memorable corporate catastrophes may simply be the law of big numbers: given that it advises the world’s biggest companies on some of their most challenging problems, invariably it is going to be involved in some duds.

Still, Mr. McDonald, who calls McKinsey executives “de facto industrial spies,” raises the specter that the work the firm does for one client may also help its rivals. Mr. McDonald wrote, “The firm would surely take umbrage at the suggestion, but the whole notion of ‘competitive benchmarking’ is just a fancy way of telling one client what the other clients are up to, with the implicit â€" and somewhat dubious â€" promise that their most sensitive secrets will not be revealed.”

Mr. McDonald, who spent several years writing the book, asks of the firm’s reputation: “Is it a con? Maybe. The young M.B.A.’s the firm fields on its engagement teams learn on the job on the client’s dime, and it’s hard to argue that a McKinsey associate has anything to offer the clientele but long nights.”

All of that may be true. But it also doesn’t fully account for the firm’s success. Whatever bad advice it has offered over the years, clients keep coming back for more. “They have follow-on work not just because they’re good at what they do, but because they are trained in how to manage these kinds of client relationships,” Alan Kantrow, former editor of McKinsey Quarterly, told Mr. McDonald. “They understand the core reality is the relationship and conversation.”

I once asked Felix G. Rohatyn, the investment banker and merger specialist, how to measure the value an adviser’s counsel. “How can you judge advice?” he said. “You should ask the people who got advice to tell you how they feel.”

Andrew Ross Sorkin is the editor at large of DealBook. Twitter: @andrewrsorkin

Madoff Trustee Adds Details to Suit Against Financier

In 2003, a research company met with J. Ezra Merkin, a prominent Wall Street financier who had earned a fortune investing his clients’ money with Bernard L. Madoff.

During the meeting, according to a new court filing, Mr. Merkin admitted that he did not fully understand Mr. Madoff’s business and questioned its legitimacy. He warned the unnamed company never to “go long in a big way” with Mr. Madoff. He joked that “Charles Ponzi would lose out because it would be called the ‘Madoff scheme,’ ” according to notes from the meeting.

“Seems to be some probability even in Ezra’s mind that this could be a fraud,” a representative of the company concluded.

The details of that meeting are among the new claims in a lawsuit filed late Friday in Federal District Court in Manhattan by the trustee for victims of Mr. Madoff’s multibillion-dollar swindle. According to the trustee, Mr. Merkin “willfully blinded” himself to numerous indications that Mr. Madoff was a con man.

“Despite Merkin’s knowledge that Madoff was running a Ponzi scheme, that Bernard L. Madoff Investment Securities was a fraud, and that Madoff could not have achieved his incredible returns, Merkin never pressed Madoff for an explanation but instead participated in Madoff’s fraud,” wrote the trustee, Irving L. Picard, in the amended complaint, which updated an action originally filed in 2009.

Some new details came from a phone call Mr. Merkin recorded during the fall of 2005, between himself and Mr. Madoff. After a different Ponzi scheme came to light involving the Bayou Group, a hedge fund firm in Stamford, Conn., Mr. Merkin told Mr. Madoff that this would further stoke suspicions about his business.

“You know, I always tell people, as soon as there is a scam in the hedge fund industry, someone is going to call about Bernie. It’s guaranteed,” Mr. Merkin told Mr. Madoff, according to the lawsuit.

In addition, the trustee contends that Mr. Merkin deceived his clients by concealing that their money was invested with Mr. Madoff. He accuses Mr. Merkin of mixing his own money with investors’ funds, and using at least $92 million from a commingled account to buy paintings by Mark Rothko and other artists.

Since Mr. Madoff’s arrest in December 2008, Mr. Merkin has portrayed himself as a victim. Over the weekend, Mr. Merkin’s lawyer, Andrew J. Levander, issued a statement deploring the trustee’s amended lawsuit. He said his client personally lost more than $100 million in the fraud.

“In desperation to meet a legal burden he cannot meet, Mr. Picard has concocted allegations that he cannot prove,” Mr. Levander said. “These allegations are utterly baseless.”

The lawsuit seeks at least $560 million, an amount that the trustee said Mr. Merkin’s funds withdrew from Madoff accounts before the Ponzi scheme was revealed. Mr. Merkin has not been charged with any criminal wrongdoing.

Last year, to resolve a civil action brought against him by the New York attorney general, Eric T. Schneiderman, Mr. Merkin agreed to pay a $410 million penalty. That case accused Mr. Merkin of deceiving his clients by collecting hundreds of millions of dollars in management fees, when, in fact, he was just funneling money to Mr. Madoff rather than investing it himself.

The trustee is trying to block Mr. Merkin’s deal with the attorney general, arguing that it will hamper his ability to collect money for victims.

Mr. Madoff pleaded guilty in March 2009 and is serving a 150-year sentence at a federal prison in Butner, N.C. Actual cash losses from the Madoff fraud are estimated at about $17 billion, but the paper wealth that was wiped out totaled more than $64 billion. Mr. Picard, the trustee, has thus far recovered about $9.4 billion.

One of the largest pools of victims were clients of Mr. Merkin, an investor and philanthropist who was highly regarded in Wall Street circles. Mr. Merkin counted a number of philanthropies and educational institutions as clients, including Harlem Children’s Zone, New York University and Bard College. He lives at 740 Park Avenue, one of Manhattan’s most prestigious addresses.

Through a web of investment vehicles â€" Ariel Fund Ltd., Gabriel Capital L.P. and Ascot Partners â€" Mr. Merkin was among the largest of the so-called feeders, investors who directed client money to Mr. Madoff. These funds, including the Fairfield Greenwich Group and Tremont Group Holdings, played a key role in helping him expand his Ponzi scheme around the world.

Also included in the trustee’s amended lawsuit is a recounting of a meeting between Mr. Merkin and representatives of Ivy Asset Management, another firm that steered money to Mr. Madoff. At the meeting, Ivy raised questions about the uncanny consistency of Mr. Madoff’s returns.

When Mr. Merkin likened Mr. Madoff to the wizard of Oz, an employee at Ivy said, “Toto is still tugging at the curtain.”

To which Mr. Merkin replied, “The curtain is winning.”

Verizon Reaches $130 Billion Deal to Buy Out Vodafone’s Wireless Stake

Verizon Communications agreed on Monday to buy out Vodafone‘s 45 percent stake in its giant wireless unit in a $130 billion transaction, realigning the global telecommunications landscape in one of the biggest deals on record.

Under the terms of the deal, Verizon will pay about $58.9 billion in cash and about $60.2 billion in stock for Vodafone’s stake in Verizon Wireless. It will also issue $5 billion in notes to its British partner, while selling back its minority stake in Vodafone’s European unit for $3.5 billion.

Other, smaller transactions worth $2.5 billion round out the megadeal.

Big Banks, and Solo Deal Maker, to Share in Huge Telecom Deal

When it comes to ranking which merger advisers are on top of their industry, landing a role on a $130 billion deal can help out a lot.

As Verizon nears a final agreement to buy Vodafone’s 45 percent stake in its wireless unit, the banks helping to arrange and finance the transaction are eager to take part in the bonanza of fees that accompany such a transaction.

And two smaller advisers - including a star deal maker working solo - are expected to benefit as well.

A Verizon deal would be the third-biggest corporate takeover on record, based on terms not adjusted for inflation, according to Thomson Reuters. Vodafone itself holds the top spot with its $202.8 billion purchase of Mannesmann, while AOL paid $181.6 billion to merge with Time Warner.

Advisers to Verizon could earn $110 million to $125 million, while bankers for Vodafone could reap $100 million to $118 million, according to estimates from Freeman & Company.

That does not count the fees that banks could earn from financing the debt for the transaction. These firms could collect 0.2 percent to 0.4 percent of the total loan package, and 0.3 percent and 0.8 percent of a bond offering, Freeman estimates. With roughly $60 billion in financing, bankers could enjoy well over $150 million in fees for arranging the debt.

Verizon has hired an army of firms to dispense both advice and lending. Perhaps most notable is the presence of two independent advisers, Guggenheim Partners and Paul J. Taubman.

Guggenheim is an independent firm whose investment banking arm is led by Alan C. Schwartz, a former chief executive of Bear Stearns and a longtime telecommunications banker.

Mr. Taubman is a former co-head of the institutional securities division of Morgan Stanley and a star merger banker whose credits include Comcast’s takeover of NBC Universal. Mr. Taubman left the firm last year, but has long counted Verizon as an important client.

Other big deals have drawn extensively on the services of smaller advisers. The $35.1 billion Publicis merger with Omnicom relied on the services of just two independent banks, Moelis & Company and Rothschild. And NYSE Euronext’s sale to the IntercontinentalExchange involved a number of boutiques, including Perella Weinberg Partners, the Blackstone Group, Moelis and Broadhaven Capital Partners.

Meanwhile, Glencore International’s merger with Xstrata gave the league table credit to another individual, the former Citigroup rainmaker Michael Klein, for helping to arrange the deal.

Verizon has not forgotten its bulge-bracket friends in its dealings with Vodafone, however. JPMorgan Chase and Morgan Stanley dispensed advice, while the two firms worked with Bank of America Merrill Lynch and Barclays to arrange the financing.

Vodafone turned to two longtime advisers, Goldman Sachs and UBS, for its side of the table.

As DealBook noted last week, a deal would shake up the league tables. Here is where the banks stood, according to Thomson Reuters:

1. Goldman Sachs, with 238 deals valued at $342 billion
2. Bank of America Merrill Lynch, 136 deals, $281.5 billion
3. JPMorgan Chase, 174 deals, $271.5 billion
4. Morgan Stanley, 192 deals, $248.2 billion
5. Deutsche Bank, 125 deals, $180 billion
6. Citigroup, 146 deals, $155.5 billion
7. Credit Suisse, 139 deals, $145.3 billion
8. Barclays, 117 deals, $140.9 billion
9. Lazard, 158 deals, $137.1 billion
10. UBS, 112 deals, $105.1 billion

Takeover Bid for Chinese Food Company Rebuffs Short-Seller Attack

HONG KONG-China Minzhong Food, whose Singapore- traded stock halved in value last week after it came under attack by a California short-seller, said on Monday that it had received a timely takeover offer from its biggest shareholder, an Indonesian food company.

In a deal that values Minzhong at 734 million Singapore dollars, or about $576 million, PT Indofood Sukses Makmur Tbk, which is controlled by the Indonesian billionaire Anthoni Salim, offered on Monday to pay 1.12 Singapore dollars in cash for each Minzhong share it does not already own. The offer price was more than twice the previous closing price of Minzhong’s shares.

Shares in Minzhong resumed trading for the last 90 minutes of the afternoon session in Singapore, and promptly surged 112 percent to close at 1.125 dollars apiece, slightly higher than the offer price. The rapid increase was probably also due to frantic buying activity by short-sellers seeking to unwind their bets that the stock would fall further, a so-called short squeeze.

Indofood is a conglomerate with businesses as varied as instant noodle factories and palm oil plantations. It already owned 29.3 percent of Minzhong, and said it had acquired more shares on Monday, lifting its total stake to 33.5 percent. Minzhong’s chairman, Lin Guorong, and other senior executives have already pledged to accept Indofood’s offer.

Prior to Monday, Minzhong’s shares last changed hands around noon on Aug. 26 at 53 Singapore cents apiece, having plunged 48 percent in morning trading after Glaucus Research Group, a short-selling firm based in California, released a report accusing Minzhong of fabricating sales, doctoring its historical financial filings and overstating its capital outlays.

Minzhong ‘‘has so significantly deceived regulators and investors about the scale of its business and its financial performance that we expect trading in its shares to be halted and its shares to be worthless,’’ the Glaucus report said.

Minzhong’s shares had been suspended from trading since Aug. 26. On Sunday, the company issued a formal response to the allegations that rejected the ‘‘reckless opinions’’ expressed by Glaucus, saying the California firm showed a ‘‘complete lack of understanding of the way we conduct our business as well as the operating environment in the People’s Republic of China.’’

Indofood’s stock exchange filings announcing the takeover bid made no mention of the allegations by Glaucus, or of Minzhong’s response to them.

But because the offer by Indofood represented such a huge premium to Minzhong’s current valuation â€" the offer was 111 percent higher than Minzhong’s last share price and almost 7 percent higher than its average stock price over the past six months â€" it probably also contributed to a so-called short squeeze in the stock.

A short squeeze takes place when short-sellers, who make bets that a company’s share price will fall, are forced by an unexpected rally to stop selling and start buying those shares. The buying is an effort to unwind their short positions, to lock in gains or limit losses, but it further drives up the share price.

The offer by Indofood marks the latest in a series of deals where the major shareholders of Chinese companies that are listed on overseas stock exchanges have responded to attacks by Western short-sellers by launching takeover bids.

Earlier this year, shareholders of Focus Media, an advertising display company based in Shanghai that had come under attack by the short-selling firm Muddy Waters Research, approved a $3.7 billion buyout by a group of investors led by management and private equity groups â€" the biggest such Chinese privatization to date.

It was unclear Monday whether a successful bid by Indofood, which is listed in Jakarta, would result in the delisting of Minzhong’s shares from the Singapore exchange. The Indonesian company is due to release more details in a formal offer document in the next two to three weeks.

The Singaporean bank UOB Kay Hian is handling the offer on behalf of Indofood.