Fed won’t intervene in Nortel-Ericsson sale

Ottawa won’t intervene in the $1.13 million sale of Nortel Networks wireless assets to Sweden’s LM Ericsson, Industry Minister Tony Clement said Wednesday.

Despite the price Ericsson is willing to pay after a recent auction, the government has concluded the book value of the proposed Ericsson deal is below the $312 million limit that federal law sets for the government to review a sale to a foreign-owned company.

The government’s decision doesn’t cover the proposed US$915 million sale of Nortel’s enterprise assets to Avaya Inc.

The Avaya deal, which is for the unit that makes Nortel switches, routers phones and unified communications equipment, also raises anti-trust questions.

“After a careful examination of the applicable rules and threshold values under the Investment Canada Act, I have determined that the [Ericsson] sale is not subject to review under the act,” Clement said in a news release.

“The current threshold for review is $312 million. Based on materials prepared and validated by two public accounting firms and in light of the testimony presented before the House of Commons Standing Committee on Industry, Science and Technology, I am satisfied that the assets being sold fall below that threshold.”

At that hearing Nortel argued the book value of the assets Ericsson bid on was only $149 million. Clement’s statment did not explain what value his department was accepting, only that it was below the threshold.

Research In Motion raised another objection to the deal, claiming it would endanger national security if Ericsson got hold of Nortel’s next-generation wireless Long Term Evolution (LTE)technology, which could be used by police and defence departments. In his statement Clement dismissed that concern in one line without explanation.

“Based on all the information presented to me, there are no grounds to believe that this transaction could be injurious to Canada’s national security,” the statement said.

“The federal government remains committed to the information and communications technologies (ICT) sector and looks forward to Ericsson remaining a significant driver of ICT productivity in Canada. Indeed, the company has contributed to our country’s telecommunications infrastructure and has invested more than $2 billion in research and development in Canada over the past decade. The statement said that Clement believes his job is to protect Canadian jobs and intellectual property, and he believes the Ericcson deal achieves those objectives.

“The sale of Nortel’s wireless assets to Ericsson included a non-exclusive licensing agreement for certain Long Term Evolution (LTE) wireless technologies,” he said in the release. “The property rights to the patents for these technologies remain with Nortel.

“Ericsson is showing its intent to retain the Canadian Nortel employee base; approximately 800 workers have been offered positions at substantively the same pay and benefits and based in the same location. According to the company, the overwhelming majority of employees have accepted the Ericsson offer.

“With a stellar reputation in the Canadian ICT sector — and in research — Ericsson also has the resources and customer base to bring Canadian innovation to market. This deal is beneficial to Canada and will help Canada compete on the world stage.”

The decision wasn’t a suprise to telecom industry analyst Ron Gruia of Frost and Sullivan, considering the bent of the Conservative government. However, he wondered if the Tories might have taken longer in making the decision because the issue of Nortel’s sale is “a political football.”

Still, he said, Ottawa couldn’t give the impression that it’s protectionist because that could affect foreign investment. “Ericsson has been a good corporate citizen, he added, that has invested

Mark Goldberg, a Thornhill, Ont.,-based telecom consultant to carriers and enterprises, also noted that Clement drew attention to Ericsson’s history here. “This is not a case of a company from the outside raiding Canadian assets,” Goldberg said. He also pointed out that Clement dismissed the security objections because Ericsson is only leasing LTE technology from Nortel. The licences will stay, for the time being, in Nortel’s hands

Nortel, which has been operating under bankruptcy protection since January, is trying to sell off most of its assets. On June 22, after several restructuring attempts, it was delisted from the Toronto Stock Exchange and the process of unwinding began.Last month CEO Mike Zafirovski abandoned the company.

Under the Investment Canada Act, when a non-Canadian acquires control of a Canadian business, the non-Canadian must file either a notification or an application for review. However, the government only reviews deals above a certain asset level. The 2009 threshold for review for direct acquisitions by countries in the World Trade Organization is $312 million.

At press time last night an Industry Canada spokesman could not say whether the Avaya deal is under review.

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Howard Solomon
Howard Solomon
Currently a freelance writer, I'm the former editor of ITWorldCanada.com and Computing Canada. An IT journalist since 1997, I've written for several of ITWC's sister publications including ITBusiness.ca and Computer Dealer News. Before that I was a staff reporter at the Calgary Herald and the Brampton (Ont.) Daily Times. I can be reached at hsolomon [@] soloreporter.com

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