Opposition parties are urging the federal government to “review” NortelNetworks Corp.’s agreement to sell its carrier wireless unit to LMEricsson, but it’s not clear whether such a review will takeplace.

Published reports quoted Prime Minister Stephen Harpersaying the deal “will be examined under the Investment Canada Act.”Officials from the Prime Minister’s office would not say whether thisquote was accurate but later reports said Harper's statement alluded toearlier comments from Industry Minister Tony Clement, who said hisdepartment is “reviewing” whether the Investment Canada Act applies toEricsson’s agreement.

The Investment Canada Act requiresIndustry Canada to review all acquisitions by foreign firms exceeding$312 million. Although Ericsson would pay US$1.13 billion, Nortel’schief strategy officer, George Riedel, the “book value” of the assetsErcisson wants to buy is only $149 million.

Riedel made hiscomment during testimony before an emergencyhearing of the House of Commons Standing Committee on Industry, Scienceand Technology.

Committee member Brian Masse, NewDemocratic Party MP for Windsor West, disputed Riedel’s claim, arguingthe law states the $312 million cutoff refers to “enterprise value.”

However, Marie-Josee Thivierge, Industry Canada’s Assistant Deputy Minister for SmallBusiness and Marketplace Services, later testified the $312 millionfigure is in fact the book value. She was commenting in general on theInvestment Canada Act, and not specifically on the Nortel deal.

Thebook value, Riedel said, refers to current assets and fixed assets. Itdoes not include “intangibles,” which could include patents, trademarksand a future value of current customer contracts.

Whenquestioning Industry Canada officials, Masse said companies who arebeing acquired by foreigners “can have any book value they want.”

Masseappears to be correct. In a separate interview, the Canadian Instituteof Chartered Accountant’s vice-president of standards, Ron Salole, saidbook value may include intangibles, but does not have to.

“All it means is the value of assets you've got in your books,” Salole said. “It depends on the company’s accounting policies.”

Duringher testimony, Thivierge said the value would have to be recorded onthe most recent year’s financial statements, comply with GenerallyAccepted Accounting Principles (GAAP) and have been audited.

For more articles and background on Nortel, please see IT World Canada’s Nortel interactive timeline.


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