UPDATE: Ericsson submits bid for Nortel wireless

LM Ericsson of Sweden has joined in the bidding war for the carrier wireless assets of Nortel Networks Corp. Kathy Egan, Ericsson’s New York-based vice-president of communications, confirmed Thursday the company has placed a formal bid for the Nortel division that builds code division multiple access (CDMA) networks for wireless carriers and is working on Long Term Evolution technologies.

But she would neither confirm not deny a published report quoting an anonymous source claiming the amount Ericsson has bid is US$730 million. If true that would make Ericsson the highest known bidder so far.

Ericsson is now the third company to go public with an offer to buy Nortel’s carrier wireless unit. All companies who place bids will participate in a 24-hour court-supervised auction Friday.

If Ericsson acquired the Nortel CDMA business, it would “bolster” Ericsson’s recently-announced US$5 billion contract to manage Sprint’s network in the U.S. said Philip Marshall, senior research fellow at the Boston-based Yankee Group.

Toronto-based Nortel, which has been operating under bankruptcy protection since January, is currently looking for buyers for its business units. Avaya announced Monday it has offered to buy Nortel’s enterprise business for US$475 million.

In June, Nortel agreed to sell its CDMA and LTE unit to Nokia Siemens Networks for US$650 million.

That agreement was known as a “stalking horse” bid because it set the stage for other companies to offer to buy the same assets.

Private equity firm MatlinPatterson, to whom Nortel owes more than $400 million, placed a bid of US$725 million in an attempt to trump Nokia Siemens Networks, which has promised to offer jobs to at least 2,500 Nortel workers and setup a centre of excellence in Ottawa, Canada.


Egan could not comment Thursday on how many Canadian Nortel employees Ericsson would retain if it acquired the CDMA assets, but Marshall said this would probably depend on government funding.

Nokia Siemens Networks would get a US$300 million loan from Export Development Canada if its $650 million bid is accepted, and Marshall is not sure whether similar arrangement have been made between Ericsson and Export Development Canada.

“That would have some impact on the prospects of local Canadian employment,” he said. “There would need to be external incentives by the Canadian government.”

For both Ericsson and Nokia Siemens Networks, they are bidding in an effort to drum up more business from North American carriers.

Ericsson operates a research centre in Montreal developing LTE.

Nokia Siemens Networks is just starting its Canadian business. At a recent speech to the Economic Club of Canada, the company’s North American head, Sue Spradley, said the firm has 75 employees in Canada now.

For more details on Spradley’s address, watch the video

“Our goal with this acquisition is to have Ottawa become a centre of excellence for innovation going forward,” Spradley said at the time. “This is not about letting go of employees. We will be adding more and more research and development into the (Ottawa research) centre to allow it to grow.”

Espoo, Finland-based Nokia Siemens Networks is a joint venture between Nokia Corp. and Siemens AG of Munich. The stalking horse deal with Nortel would involve the sale of Nortel’s equipment, contracts, real estate sub-leases. It would allow Nokia Siemens Networks to purchase licensing agreements for Nortel’s intellectual property related to CDMA and LTE.

Analysts have said if Avaya buys Nortel’s enterprise unit, it will assuage concerns corporate IT managers who have been reluctant to buy Nortel equipment for fear there would no longer be a company around to support it. This is one of the reasons the London 2012 Organizing Committee replaced Nortel with Cisco Systems as the official supplier of the sports event.


Not everyone agrees with Nortel’s strategy of selling off the company’s units separately. MatlinPatterson has said it wants to buy other Nortel assets on top of the carrier wireless business and has recruited former Nortel executives, including Dion Joannou, who was once the president of Nortel for North America, as advisors. When it announced its bid, MatlinPatterson said it is “unwilling to accept and will actively take steps to prevent a ‘fire sale’ of Nortel’s core assets followed by the wholesale liquidation of the remaining businesses.” The company also said it would “look to partner with the existing Nortel management team” and will “ pursue opportunities to acquire additional Nortel assets as they become available …”

But Research in Motion Inc. of Waterloo, Ont. complained it was effectively shut out of its acquisition bid. The BlackBerry manufacturer said Tuesday it wanted to buy Nortel’s carrier wireless business “certain other Nortel assets” for US$1.1 billion but balked when told it could not immediately bid for other assets. Nortel responded by saying RIM refused to sign a non-disclosure agreement that all bidders were required to sign.

Nortel was founded in 1895 as Bell Canada’s manufacturing unit. After the Internet was made available to the public 16 years ago, Nortel started to expanded rapidly, with annual revenues rising from $8.9 billion in 1994 to $28 billion in 2000. All figures are in U.S. currency. Nortel started losing money in 1998, the year it bought Bay Networks for US$9 billion. In 2000 it bought 11 companies, paying $3 billion for Qtera Corp., $4 billion for Clarify, $3 billion for Xros and $1.3 billion for CoreTek Inc.

At the time of the dot-com boom, John Roth, who had joined Nortel as an engineer in 1969, had risen to become Nortel’s chief executive officer. Two CEOs (John Roth and Bill Owens) have since come and gone. Mike Zafirovski, who joined in 2005 after a stint at Motorola, led the company through its bankruptcy filing last year.


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