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Industry reaction to Nortel's bankruptcy filing
Lightwave Senior Editor Meghan Fuller Hanna has posted the following blog over at the Lightwave site:
January 15, 2009
By MEGHAN FULLER HANNA, Senior Editor, Lightwave
Nortel yesterday announced that it was filing for bankruptcy, a move that did not exactly come as a surprise, given the rumors swirling around the industry over the last several months.
In September, Nortel announced that it would explore a divestiture of its Metro Ethernet Networks (MEN) Business, including its optical and Carrier Ethernet portfolios. Its most frequently cited suitors included Huawei, Cisco, and Nokia Siemens Networks, with Alcatel-Lucent and Motorola considered long shots as both struggle with problems of their own.
In December, The Toronto Globe and Mail reported that Nortel had received offers from "three serious bidders" and was considering selling off additional assets in lieu of seeking bankruptcy protection. In the meantime, the company continued to burn cash, the value of its shares continued their free-fall, and the company inched closer to NYSE delisting. In late December, news broke that the company was, in fact, exploring bankruptcy as an option, and several analysts argued that this could be its best course of action. In a research note dated December 19, 2008, UBS analyst Nikos Theodosopoulos offered the following viewpoint:
NT has an interest payment of $100-$120 million due on Jan 15. We believe a likely challenging 4Q08, weakening '09 outlook, and tightening DIP financing may cause NT to withhold its interest payment and possibly pursue an early bankruptcy. If the company cannot sell its MEN division or get additional assistance from the Canadian government, an early bankruptcy may make sense to maximize franchise value.
And now the deed is done, leaving the telecom industry to ponder what may be next for the Canadian telecom giant. Will the company emerge from bankruptcy stronger than ever, or will it be forced to sell assets in what could amount to a fire-sale?
In an article from yesterday's New York Times, "Nortel Seeks Bankruptcy Protection", Ian Austen cites several analysts who believe that the company is likely headed for liquidation. If they are correct, he writes,
". . . the end of Nortel would be one of largest failures in the telecommunications equipment business . . . . Nortel's demise would also be among the biggest business failures in Canadian history. During the zenith of the technology boom, Nortel's market value accounted for about a third of all equity traded on the Toronto Stock Exchange."
A news article in yesterday's Wall Street Journal quoted telecom analyst Ping Zhao of CreditSights, who "gave Nortel little hope of emerging from bankruptcy. 'They were already out of favor due to their weak finances,' [she said,] 'but for any of the new projects, they are definitely out of the picture' due to the filing."
Today's Toronto Globe and Mail argues that "Nortel needs a plan, fast." Writers Simon Avery, Jacquie McNish, and Shawn McCarthy note that Nortel has not yet formulated "a master plan on how to re-emerge a stronger company."
The article continues:
"An approved agenda will most likely include the sale of assets, but whether that disposition leaves the Nortel brand alive or amounts to a full liquidation of the century-old company remains hotly debated.
"A breakup is not a top priority for the business. On the contrary, it's to be able to come out the other side as a nimbler, more focused, successful technology company," Mike Zafirovski, [Nortel's] president and chief executive officer, said in an interview. "There is no announcement today regarding strategy."
Over at Bloomberg.com, reporter Amy Thomson notes that some of Nortel's customers, including Verizon, are vowing to stick around, but they may already be weighing their options:
"Verizon, the largest U.S. phone company and Nortel's biggest customer, "isn't doing . . . anything different about Nortel today than yesterday," spokesman Eric Rabe said. The company accounted for 11 percent of Nortel's $10.9 billion in 2007 sales. Rabe said Verizon probably won't change its relationship with Nortel in the short term.
Should Nortel be dissolved, Verizon has agreements with other network providers, including Cisco, for the parts it needs, Rabe said. Verizon has already moved some of its business to Cisco to meet demands for new technology, he said."
Finally, Toronto Globe and Mail columnist Derek DeCloet argues in today's edition that Nortel should not rely on a government bailout but instead needs to refine--or perhaps redefine--its corporate vision:
"It's too early for government help. Nortel must first undergo a corporate soul-searching exercise: What does the company want to be? Where does it want to compete, and where does it want to give up? Assuming it is not dismantled entirely, the future Nortel will certainly be smaller, and focused on perhaps one or two lines of business."
So what do you think? Does bankruptcy represent Nortel's best path forward?
January 15, 2009
By MEGHAN FULLER HANNA, Senior Editor, Lightwave
Nortel yesterday announced that it was filing for bankruptcy, a move that did not exactly come as a surprise, given the rumors swirling around the industry over the last several months.
In September, Nortel announced that it would explore a divestiture of its Metro Ethernet Networks (MEN) Business, including its optical and Carrier Ethernet portfolios. Its most frequently cited suitors included Huawei, Cisco, and Nokia Siemens Networks, with Alcatel-Lucent and Motorola considered long shots as both struggle with problems of their own.
In December, The Toronto Globe and Mail reported that Nortel had received offers from "three serious bidders" and was considering selling off additional assets in lieu of seeking bankruptcy protection. In the meantime, the company continued to burn cash, the value of its shares continued their free-fall, and the company inched closer to NYSE delisting. In late December, news broke that the company was, in fact, exploring bankruptcy as an option, and several analysts argued that this could be its best course of action. In a research note dated December 19, 2008, UBS analyst Nikos Theodosopoulos offered the following viewpoint:
NT has an interest payment of $100-$120 million due on Jan 15. We believe a likely challenging 4Q08, weakening '09 outlook, and tightening DIP financing may cause NT to withhold its interest payment and possibly pursue an early bankruptcy. If the company cannot sell its MEN division or get additional assistance from the Canadian government, an early bankruptcy may make sense to maximize franchise value.
And now the deed is done, leaving the telecom industry to ponder what may be next for the Canadian telecom giant. Will the company emerge from bankruptcy stronger than ever, or will it be forced to sell assets in what could amount to a fire-sale?
In an article from yesterday's New York Times, "Nortel Seeks Bankruptcy Protection", Ian Austen cites several analysts who believe that the company is likely headed for liquidation. If they are correct, he writes,
". . . the end of Nortel would be one of largest failures in the telecommunications equipment business . . . . Nortel's demise would also be among the biggest business failures in Canadian history. During the zenith of the technology boom, Nortel's market value accounted for about a third of all equity traded on the Toronto Stock Exchange."
A news article in yesterday's Wall Street Journal quoted telecom analyst Ping Zhao of CreditSights, who "gave Nortel little hope of emerging from bankruptcy. 'They were already out of favor due to their weak finances,' [she said,] 'but for any of the new projects, they are definitely out of the picture' due to the filing."
Today's Toronto Globe and Mail argues that "Nortel needs a plan, fast." Writers Simon Avery, Jacquie McNish, and Shawn McCarthy note that Nortel has not yet formulated "a master plan on how to re-emerge a stronger company."
The article continues:
"An approved agenda will most likely include the sale of assets, but whether that disposition leaves the Nortel brand alive or amounts to a full liquidation of the century-old company remains hotly debated.
"A breakup is not a top priority for the business. On the contrary, it's to be able to come out the other side as a nimbler, more focused, successful technology company," Mike Zafirovski, [Nortel's] president and chief executive officer, said in an interview. "There is no announcement today regarding strategy."
Over at Bloomberg.com, reporter Amy Thomson notes that some of Nortel's customers, including Verizon, are vowing to stick around, but they may already be weighing their options:
"Verizon, the largest U.S. phone company and Nortel's biggest customer, "isn't doing . . . anything different about Nortel today than yesterday," spokesman Eric Rabe said. The company accounted for 11 percent of Nortel's $10.9 billion in 2007 sales. Rabe said Verizon probably won't change its relationship with Nortel in the short term.
Should Nortel be dissolved, Verizon has agreements with other network providers, including Cisco, for the parts it needs, Rabe said. Verizon has already moved some of its business to Cisco to meet demands for new technology, he said."
Finally, Toronto Globe and Mail columnist Derek DeCloet argues in today's edition that Nortel should not rely on a government bailout but instead needs to refine--or perhaps redefine--its corporate vision:
"It's too early for government help. Nortel must first undergo a corporate soul-searching exercise: What does the company want to be? Where does it want to compete, and where does it want to give up? Assuming it is not dismantled entirely, the future Nortel will certainly be smaller, and focused on perhaps one or two lines of business."
So what do you think? Does bankruptcy represent Nortel's best path forward?
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