Shortly before Christmas, I dismissedrumours published at the time that Nortel Networks Corp. wasseeking creditor protection. As one reader put it, “that’s gotta be thedumbest blog post (he has) read all year.”

The Brampton,Ont.-based company Wednesday announced it is seekingprotection from creditors in several jurisdictions. InCanada, the company plans to file for protection under the Companies'Creditors Arrangement Act and in the U.S. under Chapter 11.

In a press release today, the firm said its “normal day-to-day operations are expected to continue without interruption.”

Nortellost $3.4 billion during the third quarter of this year and announcedplans to lay off 1,300 workers to save $290 million in salaries. Italso announced it plans to sell its metro Ethernet division.

Duringthe first nine months of 2008 it had $237 million in interest charges,and used $675 million in cash to pay down debt. Its long-term debt is$4.4 billion

Eleven years ago, Nortel bought Bay Networks for$9 billion, and lost money most years after that. 2001 was a brutalyear, when it lost $27 billion, $16 billion of which was restructuringcharges. Its CEO at the time, Frank Dunn, is now facing fraud chargesfor allegedly mis-stating financial results.

If I was smart, Iwould leave the speculation on Nortel’s future to the experts.Therefore, I will continue to speculate. An acquisition is highlyunlikely, and bankruptcy will not kill Nortel. Companies like Allstreamemerged from bankruptcy protection and continue operating. At onepoint, it seemed half the airlines in the U.S. were operating underbankruptcy protection.

What probably will happen is banks andother companies to whom Nortel owes money will be issued shares toreplace their bonds. Those who hold shares right now will not get muchfor their investment. This is why an acquisition is highly unlikely,though the debt holders will certainly get more say in how Nortel isrun.



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