Deutsche Bank’s $28 Valuation

By Mark Evans | Published: March 12, 2008

Deutsche Bank’s research report issued earlier this week on Nortel and Motorola gives Nortel a enterprise value of $14.8-billion or $28/share. Here’s how the numbers break out:

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  • Not An Accountant

    So….what does this mean to the average joe? Means that to make money, it's easier just to sell the company instead of having the company producing and selling goods as it should?

  • Novice Investor

    I'm a seller at $28 !!

  • former NT

    I'd sell at $20, if it ever gets that high within the year, and take my lost.

  • Apple

    Guys, you are killing me with your jokes…
    OK I am not practicing accountant but I know the system.
    First you see here only left side of the equation, Assets!
    Second it is just estimation of assets.
    Third, the estimation is done for an imaginary 2009 year with estimation of earnings
    and here is the problem… Lets say Nortel will survive as long as 2009
    New cuts of 10 % jobs is admitting that the so called Turn Around Plan does not work!
    Any cuts in the past were linearly reflected in lost revenue
    example
    2001 rev $30 bill 100k employees
    2007 rev $11 bill 32 k employees
    Question is, will Nortel make profit on lower revenues?
    Answer?
    and lets go back to the another side of the ledger, Liabilities
    What do we have here?
    $4.5 bill debt
    $3 bill or more Pension Plan deficit
    Golden parachutes for fired employees_managers.
    service obligations, contract obligations..and so on
    Question is who wants Nortel's inventories, or tax credits /still huge/?
    so many questions…
    btw
    did you know that Nortel will have to deliver additional 2.5 mill lines to BSNL?
    Total loss on $500 mill deal is estimated /by me/ on $500 mill on revenue of $500 mill in total…
    Nortel has to do it! $40 a line!!!! when ERICs got $100 a line and NOK did not want the contract at all!
    in 2007 NT reported $39 mill loss on bsnl deal and 2008 will be around $100 mill loss or more…
    put it into the question guys! and stop dreaming!

  • SexyBeast

    There's a worm in that apple.

  • Apple

    yaya
    Tell me what do you know about apples?
    As I see you know nothing about NT stock!
    I know for sure you are just another dishonest Nortel's employee who wants to fool investors so he can get fat paychecks and bonuses…
    Tell me about it!

  • rizcorpl

    Apple,

    There is nothing on that chart related to assets! I think that is were the worm in your apple comment came from. DOH!

  • Break It Up

    This sum of the parts valuation shows that true value of Nortel will only be realized when it is broken up! Time to ditch Mike Z and bring in a more ruthless private equity type to aggressively sell or spin out the LCs (ie business units).

  • Observer

    What happens to valuations when the economy goes south ?

  • Rostupoviche

    good research—- and obviously somebody with deep pockets is hedging that we all sell our shares very soon—I will only take $400 per share–take it or leave it

  • Rostupoviche

    another dumb ()&(&&**%^%% ing Cheesehead—-as if we dont have enought of the (&(*&*^% jerks

  • Nortel watcher

    Break it up,

    Forget about the sum of the parts being greater than the whole, the Canadian govt. will not allow Nortel to die

  • Break It Up

    Nortel watcher,

    Lots of Canadian companies have been broken up effectively (eg Bell Canada with spin out of Aliant; Air Canada with spin off of maintenance arm). And I think the gov't would be wise enough to know that a break up would allow innovation to flourish again. This is a lot better than the current “walking dead” state of Nortel.

    The real issue is Zman has a flawed strategy so we probably need a new CEO and Chairman as well. As Jack Welsh says, “Control your own destiny or someone else will”!!

  • Another Nortel Watcher

    Why do you people think that the Canadian government will interfere with whatever happens with Nortel? Nortel is not a crown corporation and it does not provide services that are vital to Canada. It is simply an equipment vendor in a competitive market. The comparison with Air Canada is not valid.

  • Observer

    At worst, Bell Canada will takeover Nortel. Nortel is on the hook to provide much of the communications infrastrcuture along with Bell Canada for the 2010 Winter Olympics and could be bought with some loan guarantees from the Canadian government to Bell Canada to buy Nortel.

    Now, I did a little digging and (maybe) found why Nortel stock is being liquidated so quickly. It appears the teacher pension funds along with a bunch of other companies in Canada are on the hook for about $33B because of ..you guessed it..the credit crisis ! As I've said things are going to get much worse very soon now that we've seen first bank failure in the United States with Bear Stearns collapse. Expect a spring and summer of repeated margin calls and maybe the worst stock market in history as capital reserves will be necessary across the board.
    –
    http://globaleconomicanalysis.blogspot.com/2008…

    The Québec Pension Plan (Caisse) and the Ontario Teachers' Pension Plan are on the hook for some $33 billion in ABCP as are 40 other trustholders, mining companies, paper companies, etc all of which thought they were buying short term easily marketable notes.

    This story has been brewing since last summer (see Global Credit Crisis Canadian Style). However bailout plans have now blown up as deadline after deadline for coming up with a solution has been missed.

  • Observer

    fwiw, i think things will get bad enough that Nortel will have to be rescued. The Canadian government can't afford to have 10,000 workers in Ottawa looking for work because of a Nortel collapse based on the credit crisis and global recession. There are lot of emergency meetings going on this weekend in the banking and financial sectors because the collapse of Bear Stearns will likely trigger margin calls globally in the mortgage backed securities market. Bear Stearns was at the heart of this business and now there will be some big losers who get their securities called because of reserve and/or margin requirements. The party is over.

  • Another Nortel Watcher

    Observer – Nortel is not yet close to being insolvent. Even if the stock value drops to 10¢, the company can keep going because it is not losing money and it does have some cash reserves. Yes there is debt, but it's unlikely that the notes will be called in the near term.

    A much more likely scenario is that Nortel will get taken private, downsized, and restructured. Nortel's market cap is now almost exactly one third of what Silverlake and TPC paid for Avaya (I bet they're pissed). It would be straightforward to buy out Nortel backed by guaranteed business from the likes of Verizon and Bell Canada who cannot afford to have Nortel fail. Silverlake, as an example, could flush the current cabinet of GEniuses (used without permission) and drop somebody like Charlie Giancarlo in to repair and rebuild.

    In my opinion, this is the only scenario that will get Nortel back on the rails, and I think it's a likely one. The GEniuses are not up to the job.

  • ex-nt

    The market thinks its worth 63 cents, DB thinks its worth $2.80. It used to be worth $90, it was around $3.50 when Mike Z took over. It does not really matter what DB thinks, it only matters what the buyer will pay, in this case, $0.63 or $6.30 after reverse split. This company is in serious denial about its future prospects and should be broken up or sold.

  • Observer

    Another Nortel Watcher – Nortel is closer to being insolvent than most think. The stock has little to do with my analysis. Its a matter of looking at cash versus revenue. I'll go out on a limb and say revenue will drop further this year just like it did in the 4th quarter for them. I think the credit crisis will take its toll on Nortel customers as well and force them into spending less than they had planned. Further layoffs will bleed the company of cash as management has already stated. The downward spiral of layoffs-lower revenue-layoffs-lower revenue in each successive quarter of 2008 is a likely scenario. The problem is each time the company still isn't structured appropriately for a slowing economy and now that the ABCP market in Canada is going south it will affect the entire Canadian economy,.

    Regarding the Silver Lake theory, why would the Canadian government allow it ? As I said before, anything that doesn't preserve employment in Ottawa creates problems for the government. If the Garys couldn't convince the board of their strategy, I doubt some private equity firm could too. I think BCE taking Nortel private is a more likely scenario if things get really bad.

    By the way, regardless of who Nortel management was since 2005, I think they would have had a difficult time turning the company around. Nortel missed maybe 1 year of growth since the new management took over and now the economy has been slowing since mid 2007. So even if Giancarlo or anyone else takes over, I'm afraid he will find that there just isn't much to work with outside of a few areas. The company needs more R&D investment to become a player again instead of being relegated to Tier 2 status. This will tough given the credit environment and lack of investment that usually goes on during economic slowdowns.

  • Observer

    By th way, the company may have some cash, but what if the credit/debt crisis gets so bad they get their debt called by the big banks ? I think this is also possible given margin calls to big banks have started happening. They could start calling in their debt by looking for companies that have lower credit ratings like Nortel and start collecting their cash in order to improve their reserves. The Central Banks of the world have a huge problem on their hands as of Bear Stearns collapse last Friday.

  • protosphere

    I think the market has spoken louder than the company /analysts traditional claims concerning this company's prospects. ( 63 cents extreme presplit).

  • SexyBeast

    Does douche bag carry on clout in the banking community?

  • Nortel_New_Grad

    What a bunch of losers, whiners and nortel-haters lurking around on this blog. I presume they were either rash investors who lost their money during the tech bubble times or simply arrogant ex-nortel employees sitting unemployed and unwilling to upgrade their legacy skills. Nortel is here to stay. Get A Life !

  • Observer

    Nortel_New_Grad – where to stay ? Nortel is shedding 3100 more workes in North America. Or didn't you get the memo ?

  • SexyBeast

    They are not laying off new grads……dipS**T

  • Not An Accountant

    Why do I have this gut feeling that some of the comments posted here are from “insiders” just to counter the bearish posts or just as part of a master (marketing) plan?

  • http://nt.com happily employed, thank you

    basing CDMA multiple on AIRV as a comparable is … you pick the term.
    IBM and CSCO multiples also don't apply. this is like using multiples from GS to value BSC.
    ERIC is closer, but not close enough.
    and then you have to remember. you can never trust any numbers coming out of NT. NEVER.

  • Observer

    Check out the actions by the Fed Reserve this evening. We're officially in a global banking panic. This week should be real interesting.

    SB – If nortel is relying on new grads to turn around the company, then the shares have a lot further to fall.

    I agree with the statement that you can't trust the numbers or ratings. Not just for Nortel but for anyone. The mortgage company with the best AAA loan portfolio went under two weeks ago. What does that tell you ? The entire global economy is built on a house of cards that is now slowly collapsing.

  • Nortel watcher

    So, who's getting the pink slip at Nortel?

    Nortel took a $38M restructuring charge for the 2100 jobs being eliminated and the other 1000 jobs being “moved” overseas…if you base yourself just on the 2100 jobs, that works out to an average severance package of just over $18K per affected employee…that doesn't sound like a lot of severance which leads me to believe that once again the lower paid folks will be the ones to be let go

  • NT4HELP

    Nortel watcher – not sure where you found the numbers you quote but they are incorrect. Refer to slide 30 of the Q4 results pack presented by Mike Z and Pavi on the 27th Feb:

    Net Headcount Reduction – 2,100
    Cost of the Plan – $275M
    Cash cost – $250M
    Expected savings – $300M (annualized)

    By my reckoning on a cash cost basis that is $119k per head – not necessarily the lower paid grouping (but perhaps the longer serving….)

  • Nortel watcher

    NT4HELP,

    I got my info. from a CNN story. Here's the link:

    http://robots.cnnfn.com/2008/02/27/technology/n…

    Nonetheless, I dug further and found another story coinciding with the slide details you bring up above. Thanks for the correction and I'm glad to see it will likely not be the lower-paid folks only to bear the brunt of the layoffs.

  • Apple

    Nortel said it plans to cut about 2,100 jobs globally and will shift about 1,000 additional jobs to lower-cost countries in Asia and Europe. The company has just over 30,000 employees now, down from almost 100,000 before the tech bust in 2000.
    ======
    re
    lets correct the misconception that nt will cut only 2100 jobs!
    NT will fire 3100 employees!!!
    what does it mean “shift the jobs”?
    answer
    Nobody from USA or Canada will go to India or China to work there for half the salary!!!!

  • Not An Accountant

    Apple: If you read the slides from the last Q4/07 report presented by Mike, it was stated a “net H/C reduction of 2100″, which means you are right. 3100 will go…1000 will be hired….The magic word is “net”.
    Cheers

  • Not An Accountant

    Apple: If you read the slides from the last Q4/07 report presented by Mike, it was stated a “net H/C reduction of 2100″, which means you are right. 3100 will go…1000 will be hired….The magic word is “net”.
    Cheers

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