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Probe to delay Siemens-Nokia JV start

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CIOL Bureau
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By Georgina Prodhan and Tarmo Virki

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FRANKFURT/LONDON: An investigation into suspected corruption at Germany's Siemens will delay the start of operations of Siemens's joint telecoms venture with Finland's Nokia, the two companies said on Thursday.

Nokia and Siemens said in a joint statement that Nokia Siemens Networks is now expected to start operations in the first quarter of 2007, after their joint compliance review, not in January as they had earlier hoped.

"This is OK. This is part of the good corporate culture that these kind of things are cleared," said analyst Jussi Hyoty from FIM Securities. "From the market point of the view the corruption story has been the negative issue."

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The two companies agreed in June to combine the bulk of their telecoms infrastructure equipment making businesses into a 50-50 joint venture, creating one of the largest players in the industry.

The venture had been expected to make 2007 net sales of 17.53 billion euros ($23.15 billion) and earnings before interest and tax of 1.48 billion euros excluding restructuring charges, according to a Reuters poll of 21 analysts.

"In light of the current investigations of Siemens, the scope of which includes the carrier-related business to be transferred to the new company, Nokia and Siemens intend to adjust their agreements in order to have Siemens conduct an appropriate compliance review prior to closing of the transaction," the two companies said.

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They said Nokia will participate actively in the review.

"The merger will be slightly delayed ... We want the new firm to start with a clean slate," said Nokia spokeswoman Arja Suominen.

A Siemens spokesman said financial terms of the joint venture agreements remained unchanged.

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Nokia's ADRs were little affected by the news and were 0.1 percent higher at $20.45 by 1721 GMT. Siemens's ADRs were also flat.

"The delay was quite expected. Whether they are going to make it in the first quarter is too early to say, it could take longer," said eQ Bank analyst Jari Honko.

BETTER MARGINS

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Analysts said they did not expect Nokia to withdraw from the venture as the company's profit margins would receive a major boost in the longer term from much larger network equipment unit.

Munich prosecutors are currently investigating hundreds of millions of euros they suspect Siemens staff may have siphoned off from company accounts to pay bribes to win telecoms deals.

Siemens is also conducting its own probe into the affair, which has led to arrests -- including that of a former top manager of the company's telecoms equipment division -- and to calls for Siemens's supervisory board chief to resign.

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