Nortel will try to sell patents: Analyst

 Nortel Networks Corp. has said Thursday it has raised $2 billion from selling business units to other vendors and is still figuring out what do to with its numerous patents.

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“My feeling is that that the value of their patents really will be with companies that actually manufacture products that utilize those patents,” said Andy Woyzbun, lead analyst with London, Ont.-based Info-Tech Research Group. “I suspect that rather than try to operate Nortel as a going concern that they will attempt to sell those patents now while they still have value.”

Toronto-based Nortel once employed more than 100,000. The telecommunications equipment maker now has 459 workers in its business services group and 75 in its corporate group in Canada. A company spokesperson stated the business services and corporate group employ 2,237 and 166 worldwide in total.

“The company also continues to employ people connected with businesses in the process of being divested,” the spokesperson wrote in an e-mail to Network World Canada.

In a press release Thursday, Nortel said it is pursuing “strategic alternatives to maximize the value” of its intellectual property.

Asked whether this means Nortel might continue operating as patent licensing firm, or whether it will sell its patents and wind up operations, the spokesperson wrote: “This is all the information the company is providing with respect to exploring strategic alternatives” for the intellectual property.

During testimony last summer before the House of Commons Standing Committee on Industry Science and Technology, Nortel Chief Strategy Officer George Riedel testified that Nortel will sell its principal businesses.

Anthony Rota, the Liberal Member of Parliament for Nipissing-Timiskaming, asked whether Nortel will continue to exist a research firm that license patents.

Riedel testified that that “no process (had) been put forward to deal with” the patents.

On Thursday, Woyzbun said he couldn’t say for sure whether Nortel would sell its patents to another company.

 “I doubt very much that we’ll see Nortel try to leverage their name as some sort of a going concern,” Woyzbun said. “After Nortel finishes all of its cleanup and transfer of assets we will no longer see Nortel’s name around as an active company.”

But he added the patents might go to a licensing firm.

Nortel, founded in 1895 as Bell Canada’s manufacturing unit, saw its revenue peak at US $27.9 billion in 2000. But it lost money nearly every year since 1998, and Nortel filed for bankruptcy protection in January, 2009.

Because it owed billions to bondholders, pension funds and former employees, Nortel announced in June it would sell its major business units.

Avaya Inc. now owns Nortel’s enterprise unit, including switches, routers and call centre products, which it acquired for US$915 million. Avaya said last month it hired about 600 former Nortel workers in Canada and inherited facilities in Ottawa and Belleville, Ont.

Telefonaktiebolaget LM Ericsson of Sweden acquired several carrier wireless assets, including code division multiple access (CDMA) and Global System for Mobile Communications (GSM) products. Last year Ericsson bought the CDMA base station unit plus non-exclusive licenses for Long Term Evolution (LTE) wireless patents for US$1.13 billion.

Ericsson has hired 900 former Nortel employees in Canada.

In November, Ericsson, along with Kapsch AG, bought Nortel’s GSM wireless assets. Vienna-based Kapsch got the GSM assets in Taiwan for US$30 million while Ericsson got the U.S. based GSM business for US$70 million.

Ciena Corp. of Linthicum, Md. Bought Nortel’s metropolitan Ethernet and optical networking unit for US$769 million.


In December, Nortel sold its carrier voice over IP division to Genband Inc. of Plano, Tex. for US$282 million.

The major units were sold off in auctions which started with “stalking horse” agreements.

For example, Nokia Siemens Networks placed a stalking horse bid for the CDMA wireless unit in June that Ericsson won. The third bidder was MatlinPatterson, a New York-based firm that specializes in buying financially-strapped firms.

Ciena placed a stalking horse bid for $521 million but had to increase its offer to $769 million.

Avaya’s initial bid was $475 million but in the end it had to more than double its money in order to edge out MatlinPatterson and Munich-based Siemens Enterprise Communications Group, which is majority-owned by Gores Group LLC of Los Angeles.

Nortel continues to appear in court as part of the creditor protection process.

Earlier this week it announced it reached an agreement with lawyers representing former employees, the Canadian Auto Workers Union.

That agreement, which is subject to court approval, states Nortel will pay “up to $3,000” each, to “eligible terminated employees,” from a $4.2 million fund, “as an advance” to claims made under the Companies’ Creditors Arrangement Act. Those figures were in Canadian currency.

Nortel refused to tell Network World Canada how many terminated employees are eligible to receive payments, how many terminated employees are not eligible and how much money in total those employees would have made in termination payments had Nortel not filed for creditor protection.

But Woyzbun suggested Nortel employees overall got a good deal, considering the  company is in bankruptcy protection.

“They seem to be winding this thing down in an orderly manner the fact that they managed to keep a large number of employees employed is clearly a success for the management of the firm,” he said. “Clearly not everyone is on the sweet side of this but there are a large number of employees that will keep their jobs with the companies that took over and that’s a good thing, we don’t always see that.”

The agreement announced Monday also proposes:

-Nortel will continue to administer and make payments to pension plans until Sept. 30, when the  Superintendent of Financial Services will appoint a new administrator;

-Nortel will continue to pay medical and dental benefits to pensioners, survivors, and employees on long term disability “in accordance with the current benefit plan terms and conditions” until the end of this year;

-Employment of those on long term disability “will terminate” on Dec. 31;

-Life insurance benefits “will continue unchanged” for the rest of the year;

Nortel stated in its press release that lawyers for the pensioners and union “have agreed to work toward a court-approved distribution, in 2010, of the assets of Nortel’s Health and Welfare Trust, the vehicle through which Nortel generally has historically funded these benefits,” with the exception of those on long term disability. 

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