The opposition Liberal party’s industry critic, Marc Garneau, is disappointed the federal government decided not to review the US$1.13 billion sale of Nortel’s carrier wireless assets to Ericsson.
“I am convinced that any other country in a similar situation would have submitted this sale to a review,” Garneau, Liberal Member of Parliament for the Montreal riding of Westmount Ville-Marie, said in an interview.
He did not propose the government actually block the sale.
On Wednesday Industry Minister Tony Clement announced the government would not review Ericsson’s purchase of Nortel’s carrier wireless assets because the book value of what is being bought is less than $312 million. “They are hiding behind the flimsy excuse the they hired a company to evaluate its book value.”
In August, the Liberal party called on the government to review the sale after Research in Motion Inc. claimed if LTE networks are made a foreign company it could harm national security. At the time, a press release from Garneau’s office demanded the feds “provide proof of the benefit of the sale of Nortel's wireless assets to Canadians before allowing it to proceed. “
In July RIM had claimed it was unfairly shut out of the bidding process, but Nortel officials have said RIM was ineligible to bid because it refused to sign a non-disclosure agreement.
RIM tried unsuccessfully to buy Nortel’s Long Term Evolution patents earlier this year. Nortel plans to keep those patents and Ericsson’s wireless acquisition gives it a non-exclusive license to them.
The sale, which was approved by bankruptcy courts in Canada and the U.S., is part of an effort by Nortel to sell most of its assets in order to pay creditors. The Toronto-based network equipment manufacturer has been operating under bankruptcy protection since January.
During a hearing Aug. 7 before the House of Commons Standing Committee on Industry, Science and Technology, Nortel chief strategy office George Riedel said the book value of the assets Ericsson is buying is US$149 million, which is comprised of US$111 million in current assets and US$38 million in fixed assets.
Some Members of Parliament expressed dismay that a US$1.13 billion acquisition could have such a low book value. For example, Mario Laframboise of the Bloc Quebecois said the “real value is more important than the book value.”
Brian Masse, a New Democratic Party Member of Parliament from Windsor, Ont., said during the hearings he was under the impression the $312 million cutoff referred to the “enterprise value” rather than the book value of a transaction. But when he questioned Mary-Josee Thivierge, Industry Canada’s assistant deputy minister for small business and marketplace services, she said an amendment to the Investment Canada Act changing the threshold to enterprise value was not yet in force.
Garneau said Thursday both the Liberal and Conservative parties agreed to the new rule.
“It very clearly ignores the fact that the government itself earlier this year and we voted for it, the Budget Implementation Act, included proposed changes to the Investment Canada Act, saying instead of using book value, as the criterion the threshold will be the enterprise value or sale value,” Garneau said. “They very clearly recognized the fact that sale value is a much more accurate description than book value, which can sometimes be artificially low depending on how you do your accounting.”
Nortel agreed to sell its carrier wireless assets, which includes code division multiple access (CDMA) base stations, to Ericsson after the Swedish manufacturer won an auction July 24. That was started by a “stalking horse” bid placed in June by Nokia Siemens Networks.
This week a U.S. bankruptcy court also approved the sale of Nortel’s enterprise assets, which include switches, routers, private branch exchanges, phones and firewalls, to Avaya Inc. of Basking Ridge N.J.
Avaya, which makes telephony and unified communications hardware and software, was spun off by Lucent Technologies Inc. – which has since merged with Alcatel SA – in 2000. Avaya originally bid US$475 million but upped its offer to US$915 million as a result of an auction. Rumour has it Siemens Enterprise Communications and MatlinPatterson also bid for the enterprise unit.
MatlinPatterson is an investment firm which holds about US$400 million on Nortel bonds.