Small Business VoIP

A bankrupt Nortel – a company that today posted dramatically lower revenues and announced the departure of its president and CEO – is on the chopping block again, two different kinds of blocks in quite separate venues, but having remarkably similar literal and metaphorical results: a dismemberment of the onetime technology giant.

 

Yet the heads that may roll are different: Nortel’s top management in one as the units are absorbed in the buyers’ corporate maws and the Canada’s ruling conservative government for seemingly permitting the collapse of what was once the nation’s leading corporation in another.

 

Reuters reported that Nortel Networks received U.S. and Canadian court approval to sell its enterprise business at an auction scheduled for Sept.11. Bids are due Sept.4. Nortel has a ‘stalking horse’ agreement to sell the division along with shares of Nortel Government Solutions (News - Alert) and DiamondWare to Avaya for $475 million after considering four potential bids. Nortel had resolved 10 objections to the proposed bidding procedures, including those from potential bidders, Nortel’s lead U.S. attorney said at hearings that took place last week.

 

The company said it is selling the enterprise business, which allows customers to combine voice and data needs, because of competition from companies such as Cisco (News - Alert) Systems and because it does not have the resources to maintain the business.

 

“The business needs to be sold to preserve and maximize value for all stakeholders,” said Derrick Tay, of Ogilvy Renault, which represents Nortel in Canada. “The intricacies of trying to sell this outside of a (bankruptcy) filing were too difficult to achieve.”

 

Nortel’s attorneys said that the sale of the enterprise business and its approximately 7,800 employees are more complicated than the auction of the wireless business, which the courts have approved to Ericsson (News - Alert). While the latter has a few large customers with long-term contracts the former has many contracts that are smaller and cover shorter periods.

 

Due to the large number of customers and contracts, Nortel plans to let the buyer later determine which contracts will be kept. Nortel’s business has been deteriorating during the company’s stay in bankruptcy because customers fled when contracts expired.

 

“These procedures are consistent with those employed with success in (the bankruptcies of) GM and Chrysler, and Lehman Brothers last year,” said Nortel’s U.S. attorney, James Bromley of Cleary Gottlieb Steen & Hamilton LLP.

 

While Avaya plus any other prospective bidder line up for the Nortel enterprise auction, the scene appears to be set for a possible fall federal election with Canada’s technology policy heightened by the Nortel dismemberment as a key issue.

 

A Canadian Parliamentary committee held a special hearing on the Nortel asset sale Friday in which Research In Motion co-ceo Mike Lazaridis urged the federal government to intervene on the sale of the tech firm’s wireless unit to Ericsson, reported the Globe and Mail. The RIM executive cited two broken ‘handshake’ deals to buy some Nortel assets. One coming just before Nortel filed for bankruptcy protection, and the other larger potential sale just before Nortel surprised the company by announcing a stalking-horse bid from Nokia-Siemens Networks.

 

“We felt like we were snookered,” said Lazaridis.

 

The RIM exec called in his testimony to the House of Commons’ industry committee for intervention by Industry Minister Tony Clement. But Ericsson quickly rejected the idea, saying the deal can’t be changed, and should sail forward without a foreign-investment review by Ottawa.

 

Nortel and Ericsson insisted the book value of the assets is not enough to trigger the government to launch a foreign investment review; at $149 million compared with $312 million according to the federal government, though Ericsson agreed to pay $1.13 billion. But RIM argued it should be reviewed on grounds of national security, suggesting that a foreign sale could make government and police phones more vulnerable to eavesdropping.

 

Lazaridis said Mr. Clement should first try to settle the issue by gathering together executives from Ericsson, Nortel and RIM to try to strike a new deal under which RIM could get the asset pieces it wants.

 

“Minister Clement’s stature is such that he may well be able to fashion over the next few weeks an outcome that serves the interests of all parties, and of Canadians,” Lazaridis told the Commons industry committee.

 

Ericsson Canada president Mark Henderson rejected the idea. “If you try to redefine the bankruptcy process, the auction, you’ll open up a whole can of worms,” he told Parliament. Mr. Henderson added that nixing the deal could be a bad message to send on foreign investment in Canada. “It’s not the greatest signal to send out there,” he said.

 

Industry minister Clement’s spokesperson, Darren Cunningham, said the minister would not comment because bidders still have time to appeal the sale. But government officials said they have no power to summon Ericsson to broker a new deal.

 

Political pressure is mounting for a review, however, with both the Liberals and NDP calling for the government to examine the impact on the tech sector and national security, said the Globe and Mail.

 

Setting the stage was testimony from a senior Nortel executive that Canadian government repeatedly refused to help Nortel Networks over the past year as the telecom equipment maker fought to avoid filing for bankruptcy protection, reported Reuters.

 

“At the end of the day, the government chose not to provide any pre-filing support,” Nortel Chief Strategy Officer George Riedel told the House of Commons industry committee.

 

Riedel said Nortel had about a dozen different meetings with the federal government over the last year to ask for funding help for its various restructuring plans.

 

“The feedback we got was that the government did not see the plans presented as viable, that the industry was not at risk,” he said.

 

RIM hoped to find a political nerve on the present Conservative government by likening the Nortel sale to the cancellation of the Avro Arrow, an advanced Canadian-developed jet fighter cancelled by the Conservative government of the day 50 years ago. Canadian engineers and scientists dispersed mostly to the U.S. following the cancellation where they helped build the American aerospace program.

 

The RIM co-CEO may have found it. Canwest New Service reported that Conservative MP Michael Chong, who chairs the committee, questioned whether the BlackBerry maker wasn’t applying a double standard to the Nortel auction and the ongoing bankruptcy proceedings of the Coyotes. RIM’s other CEO, Jim Balsillie, has mounted a high-profile bid to buy the NHL team with his own resources, and proposed moving the team to Hamilton.

 

“To me there seems to be a bit of an inconsistency here, because your colleague Mr. Balsillie has argued that under one court-supervised bankruptcy proceeding in the southwestern United States, that the auction be awarded to the highest dollar bidder, that the successful bidder be allowed to be a foreign buyer, and that that successful bidder be allowed to move the business outside the country,” said Chong.

 

“Yet on the other hand, at another court-supervised auction proceeding in the United States and here, you and your colleagues believe that the auction . . . be awarded, not to the highest dollar bidder, and that the successful bidder not be a foreign buyer, and that the successful bidder not be allowed to move the business outside of the country. And you’ve put our government in a very difficult position.”

 

Chong’s comments came just before he adjourned the RIM portion of the six- hour hearings. But within hours of Chong’s remarks, Lazaridis sent him a letter noting that he was not given the chance to reply.

 

“With all due respect, the Ericsson-Nortel transaction and what it represents to Canada is in a very different league,” Lazaridis wrote. “I think we can all appreciate the importance of hockey to Canadians; however, the Arizona proceedings are irrelevant to the matters before this committee today.”

 

Yet in what may be a signal that he is about to step down, CEO Mike Zafirovski confirmed in an interview with the Ottawa Citizen earlier this week that he has been approached to run other corporations and expects soon to have fulfilled his obligations to Nortel. The paper said that he has been doing a lot of thinking about his legacy, a likely sign he will soon be on his way to another firm.

 

“I’ve told the board of directors I’ll give this job 100 per cent and walk out with my head held high,” he said, in a story carried on Canwest New Service prior to Friday’s, Parliamentary committee hearing. “Obviously I’m not going to be a CEO of a residual company dealing with patent assets and claims.”

 

This would leave a bare bones corporation with perhaps 3,000 patents in its possession, including the LTE (News - Alert) wireless assets sought by RIM. To Zafirovski, the disposition of these assets is relatively less important than his ability to secure a future for a majority of Nortel’s remaining 27,000 employees, even if this means they’ll be working for new owners. He said his team believed they made the best decisions we could. Now, at least, the employees will end up with larger companies that will be able to offer them a future.

 

“We wanted a great transformation and gave it one hell of a run,” said Zafirovsky, a former Motorola executive, was hired, said the article, with great fanfare, in 2005 to effect what he hoped would be a historic turnaround at Nortel. “We were on the verge of (transformation) but the world turned upside down.”

 

There’s little doubt the onset of an economic recession did much to push Nortel into bankruptcy protection Jan. 14. The corporation began the downturn with a thin net cash position and was no longer a leader in any of its major businesses.

 

Even RIM co-CEO Mike Lazaridis on Friday did not blame Zafirovski for Nortel’s weakened state.

 

“The mistakes that led to Nortel’s insolvency were made many years ago,” he told members of the House of Commons’ industry committee.