Will Microsoft be forced to buy Nokia?

Rumors are flying again that Microsoft is eying a buyout of Nokia -- and this time they might be true. It's not so much that Microsoft wants to buy the troubled phone maker as that Microsoft may be forced to buy it to prop up the struggling Windows Phone platform.

The Register reports that late last year Microsoft was given a look at Nokia's books because Microsoft wanted to see which parts of Nokia might be worth buying. But Microsoft was not impressed, the Register says, and so made no bid.

But things have changed since then. Nokia is in such bad financial shape that it could run out of cash, says Reuters. On May 18 the news service reported:

Nokia Oyj is tearing through its cash reserves at an unsustainable rate, raising what some analysts say are serious questions about the struggling Finnish phone maker's ability to stabilize its finances in the months ahead.

With the cost of Nokia's debt rising, the most bearish of analysts in a Reuters poll said the company could even be at risk of default if it fails to slow the burning of its cash.

Why might Microsoft buy Nokia now when it declined to do so after getting a look at the company's books late last year? Nokia is clearly in worse shape than it was back then, and Microsoft simply can't afford a severely weakened Nokia. The future of Windows Phone rests as much with Nokia as it does with Microsoft. Without Nokia, Windows Phone will be nearly dead.

The company can also be had for much less than it could have late last year. Back then, Microsoft would have had to pay a premium for Nokia. No longer. Nokia stock is bumping along at near a 15-year low, at $3 per share or under. In late November 2011 it was trading as high as $7.38, and for most of December it was over $6. So Microsoft could buy out the company for far less now than back then.

Rumors have Samsung interested in buying Nokia, although Samsung has denied them. If Nokia is bought by a competitor, Microsoft can't count on the buyer being as committed to Windows Phone as Nokia was.

I'm not sure that Microsoft wants to buy Nokia. But given the circumstances, it may be forced to.

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