Microsoft Corp said it will buy Nokia's phone business for 5.44 billion euros ($7.2 billion), making its boldest foray yet into mobile devices and bringing well-regarded executive Stephen Elop back into the fold.

Nokia CEO Elop, a former Microsoft executive, will return as the company's board ponders a successor to current CEO Steve Ballmer, who will depart sometime in the next 12 months after initiating an internal reorganization intended to transform the software company into a "devices and services" giant in the mold of Apple Inc.

The Canadian, hired from Microsoft in 2010, has been cited among the frontrunners for Ballmer's job.

Ballmer has been criticized for missing the mobile revolution, kicking off Microsoft's foray into the market with the tepid-selling Surface tablet only in 2012.

Buying Nokia's gadget business thrusts Microsoft deeper into the hotly contested market, despite some investors urging the company to stick to its core strengths of business software and services.

Activist fund manager ValueAct Capital Management, which has been offered a board seat, is among those concerned with Ballmer's leadership and his attempts to plough headlong into the lower-margin, highly competitive mobile devices arena. The San Francisco-based fund, which manages about $12 billion for clients, owns 0.8 percent of Microsoft's shares.

Others applauded Ballmer's aggressive gambit.

"This is huge but necessary gamble from Microsoft. After years of misfires with Windows Mobile Phone, it's changing gear and taking control of both software and hardware," said Geoff Blaber, Director of Devices and Software Platforms at CCS Insight.

"If there was any concern that a new Microsoft CEO could back-pedal on the devices and services strategy that has now evaporated. This move permanently reshapes Microsoft's business."

As part of Microsoft, Elop will head an expanded Devices unit. Julie Larson-Green, who in July was promoted to head a new Devices and Studios business in Ballmer's grand reorganization, will report to Elop when the deal is closed, scheduled for the first quarter of next year.

A CONSTANT STRUGGLE

Finland's Nokia, once the undisputed leader in mobile phones, has been struggling to respond to the challenge from smartphone makers such as Apple and Samsung.

Analysts say Elop's bold bet in 2011 to adopt Microsoft's untested Windows Phone software has yet to pay off.

"It's a bold step into the future — a win-win for employees, shareholders and consumers of both companies," Microsoft's outgoing CEO, Steve Ballmer, said in a statement.

"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."

Nokia said in a statement it expected that, apart from Elop, senior executives Jo Harlow, Juha Putkiranta, Timo Toikkanen, and Chris Weber would transfer to Microsoft when the deal was concluded. It did not say what roles they would take there.

Nokia board chairman Risto Siilasmaa would take over CEO duties while the Finnish firm looked for a new CEO, it said. – Reuters