Is Nortel an LBO Candidate?

As Nortel CEO Mike Zafirovski drives to fix Nortel by reducing costs and getting out of unprofitable markets such as the UMTS access business, he is setting up the company to be a leveraged buy-out candidate? According to BusinessWeek, the high-tech sector is ripe for LBOs after several years of stagnating stock prices, increasing regulatory requirements and worthless stock options. Among the companies to go private are SunGard Data Systems ($11.4-billion), Serena Software ($1.3-billion) and Royal Philips Electronics’ chip unit ($9.5-billion). That opened the eyes of many a tech chief to the possibilities of private equity. BusinessWeek suggests future candidates include Nortel, Sun Microsystems, NCR, Symantec, Siemens and Avaya. With a market cap of $9.1-billion, Nortel would be a relatively large LBO but it could make for an interesting play if Mike Z.’s restructuring strategy starts to generate cash flow and profits. The new owners could presumably sell some of Nortel’s assets to generate cash, and operate a leaner, profitable organization that could be sold down the road.