Brampton, Ont-based Nortel Networks Corp. and Motorola Inc. are reportedly considering merging their respective wireless network equipment businesses.
The two companies are currently in merger discussions, according to published reports. The reports suggest that Motorola president Ed Breen and several top Nortel executives are considering a few options, including the possible purchase of Motorola’s US$6.5 billion wireless division by Nortel’s $5.7 billion wireless business.
The combined company would then be developed as a separate entity, the reports state. A Motorola spokesperson says the company will not comment on rumor or speculation and will neither confirm nor deny that the talks are in fact going on right now. Nortel did not comment by press time. Nortel also says it won’t comment on rumors and speculation. The company would neither confirm nor deny that talks are underway.
Motorola’s wireless network division reported a $1.4 billion loss in 2001. Some analysts feel that Motorola would not be considering such actions if its wireless division were not suffering due to reduced capital expenditures brought about by a poor economic climate.
Allen Nogee, senior analyst of wireless component technology for Cahners In-Stat Group, says the combination would make sense given the tough economic climate and the complementary products. Nortel plays in the GSM/General Packet Radio Service arena and Motorola addresses the Code Division Multiple Access market.
“They may have some overlap, but not much,” Nogee says.
If the two companies do not merge operations, Motorola may sell or spinoff one or more of its three wireless operations: infrastructure, handsets and components, Nogee says.
“I’d always thought their infrastructure program was the most secure of the three,” he says. “Now it seems harder to make that assessment.”
Nogee, however, does not believe spinning a new company off of this possible merger is smart. “Both of these companies have really big, really well-known names,” he says. “If they start a new company, they’ll have to start from scratch, especially with name recognition.”
The reports state that Nortel may not be able to afford the transaction, since the company’s shares fell this week to a seven-year low. However, shares closed up 20 cents at $4.77 on Thursday, prior to news of the possible merger.
Motorola shares closed up 28 cents at $13.50.