Nortel breakup still not a fait accompli

Breaking up is often hard to do, though it’s easier when you have othersuitors. But it’s quite the opposite when you’re talking about atelecom equipment manufacturing firm.

Avaya Inc. has bidUS$475 million for Nortel Networks Corp.’s enterprise unit,but a Canadian analyst thinks this is lower than what Avaya is willingto pay.

Ronald Gruia, program leader for enterprise telecom atFrost & Sullivan, says Nortel’s enterprise unit is worth closerto US$525 million. He adds NokiaSiemens Networks US$650 million bid for Nortel’s carrier wirelessdivision is also on the low side.

“Both companies are following the same gaming theory,” he said. “They are bidding slightly below what they would otherwise bid.”

Nortelhas been operating under bankruptcy protection since Jan. 14, afterlosing US$7 billion since 2005. It has lost money nearly every yearsince 1998, and last month announced it was in “advanced discussions”to sell its business units.

The offers from Avaya and NokiaSiemens Networks are stalking horse bids, meaning if any othercompanies want to buy the business units, they can enter a biddingprocess. The deadline for counter-offers for Nokia Siemens Networks bidis Tuesday July 21.

Nortel owes US$4.4 billion to bondholders.About one-tenth of those bonds are held by MatinPatterson, which hassaid it plans to present an alternate proposal of “superior” value.

“The thinking was they were going to try to hold on to the entire company,” Gruia said.

Thoughit’s not clear whether anyone other than MatlinPatterson and NokiaSiemens Networks want the wireless unit – which makes CDMA and LTEproducts – Siemens’ enterprise unit might go after Nortel’s enterprisebusiness, Gruia said.

“In the enterprise space I could see more bidders than with wireless.”

Thatleaves the metropolitan Ethernet unit, which Nortel tried to sell lastfall but for which it found no buyers. Lawrence Surtees, avice-president with IDC Canada, has noted the metro Ethernet unit hasNortel’s optical technology, which was the major focus for much of thecompany’s research and development.

MatlinPatterson and Avayaare both tight-lipped about their plans, whereas Nokia Siemens Networkshas been conducting a media blitz about its plans to hire 2,500 Nortelemployees and start a global centre of excellence in Ottawa. There’s aconsensus within the industry that Nortel’s major problem has been theuncertainty over its future, rather than its products or technology.Presumably, MatlinPatterson’s proposal will entail an issue of newshares to the debtholders, whose bonds would essentially be writtenoff. Beyond that, the future of the products, employees andintellectual property is uncertain.

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