Nortel puts up for sale sign on LG joint venture

Nortel Networks has officially announced what many industry observers already suspected: It’s partnership with Korea’s LG Electronics is up for sale.

Ever since the struggling Toronto-based telecommunications equipment manufacturer announced a restructuring late last year, followed by a filing in January for bankruptcy protection , it’s been assumed that there isn’t much that’s not on the auction block as Nortel tries to restructure. Now the company that lost $5.8 billion last year is broadcasting that it’s looking for a buyer for its majority stake (50 per cent plus one share) in LG-Nortel, a separately-held joint venture started in 2005. The unit makes wired and wireless solutions for service providers and enterprises ranging from desktop phones to advanced fibre-to-the-home technology.

A Nortel spokesman said the company wouldn’t comment on the timing of the LG-Nortel sale announcement. A press release said a motion will be filed with a Canadian court for approval of a sale process.

“I’m not sure why now,” confessed Zeus Kerravala, senior vice-president of enterprise research at Yankee Group. “From what I understand the valuation of it’s pretty high – about $1 billion [for the entire joint venture].

“The company has to raise money to get itself out of the hole it’s in, and this is a piece of the business that has some value.”

He speculated those interested could include manufactures that want to get deeper into unified communications such as Polycom, Hewlett-Packard and Juniper Networks. Among the benefits of the joint venture is that it comes with a unified communications alliance with Microsoft. Partnering with the software giant, whose presence in telephony is only expected to increase, is quite desirable Kerravala said.

In its most recent quarter the company said LG-Nortel pulled in $188 million in revenue, a seven per cent drop over the previous quarter and a 66 per cent drop over the same period a year ago.

The announcement is another sign of how difficult Nortel’s position is. It is trying to sell assets and present a restructuring plan to the courts. Such a plan would indicate what’s not for sale – or can’t be sold – which would give some comfort to customers worried about whether their Nortel gear will be supported in the future.

However, Kerravala agreed that if it can’t find buyers it can’t present a plan – which is distressing to both creditors and customers. It has until July 30 to present a plan.

As recently as last October LG-Nortel was touting its leading-edge Wave Division Multiplexing Passive Optical Network, or WDM-PON technology , which uses unpowered optical splitters to let a single optical fibre serve multiple premises. However, the recession has deeply cut into capital spending by service providers.

In a news release LG-Nortel chair and general manager Peter MacKinnon said the proposed sale of the Nortel share “represents the best path forward for LG-Nortel, its customers and employees. “LG-Nortel is a strong, independent, technologically astute and commercially savvy organization. With a competitive portfolio of wireless, wireline and enterprise solutions, LG-Nortel is a market leader in Korea and select international markets.”

Nortel’s strategy hasn’t been clear recently, which has given rise to complaints . In the fall the company put its metro Ethernet division up for sale, only to pull back soon after. It’s most recent strategy has been to put divisions into four self-supporting units , including LG-Nortel. “This will provide Nortel with maximum flexibility to choose the ultimate path forward for each of the businesses,” the company explained in a news release.

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