U.S. software giant Microsoft plans to buy the handset business of Finland's Nokia for $7.2 billion (5.44 billion euros), the two companies announced.

Besides the mobile phone manufacturing operation, Microsoft will be getting patents and licenses.

Nokia, once the world leader in cell phones, was caught flatfooted by the emergence of smartphones, a market now dominated by Samsung and Apple.

Stephen Elop, who left Microsoft in 2010 to become CEO of Nokia, will be returning to the U.S. company as part of the deal, which the parties expect to close in the first quarter of 2014, subject to approval by shareholders and regulators.

The transaction is "a bold step into the future," Microsoft chief Steve Ballmer said in an e-mail to employees.

Nokia's handset business employs 32,000 engineers, assembly workers, managers and distribution personnel worldwide. The firm's failure to jump on the smartphone bandwagon in time has led to losses that forced Finland's largest employer to eliminate some 20,000 jobs. EFE