Microsoft is to acquire Nokia's Devices & Services business, which includes the smartphone and mobile phones businesses, for €3.79 billion, Microsoft said on Monday.
The Redmond, Washington, software company will also pay €1.65 billion to license Nokia's patents, for a total transaction cost of €5.44 billion in cash.
Nokia CEO Stephen Elop will be coming back to Microsoft and lead an expanded devices team, Microsoft's CEO, Steve Ballmer, said in an email to employees.
"Building on the partnership with Nokia announced in February 2011 and the increasing success of Nokia's Lumia smartphones, Microsoft aims to accelerate the growth of its share and profit in mobile devices through faster innovation, increased synergies, and unified branding and marketing," Microsoft said in a statement.
Nokia has been building smartphones around Microsoft's Windows Phone operating system in a bid to boost flagging market share, besides focusing on feature phones for emerging markets.
Microsoft will acquire Nokia's design team, manufacturing and assembly facilities around the words, and operations, sales, marketing and support teams, Ballmer wrote in his email to employees.
Ballmer announced recently that he was retiring at some point in the next 12 months from the post of CEO of Microsoft.