Who’s Going to Buy MEN?

By Mark Evans | Published: September 23, 2008

So, it’s been a week since Nortel unveiled plans to dump MEN – aka Metro Ethernet Network.

It’s a $1.5-billion/year business, growing at 10%/year that could easily see even better growth if it was de-Nortelized.

So, who’s going to step at a time when economic conditions are volatile, large customers are showing some skittishness and competition remains fierce?

An interesting suggestion from the comment-sphere is a private equity buy-out. One possibility is Charlie Giancarlo, who used to be an executive VP and chief development officer with Cisco before leaving to join SilverLake Partners, which acquired Avaya.

In terms of industry players, the potential list of suitors could include Ericsson and Huawei, which desperately wants a foothold in the U.S.

Of course, the key consideration is how much Nortel can get for MEN. Paradigm analyst Barry Richards suggests it’s worth $2-billion, while other analysts suggest $1-billion.

If Nortel can get $2-billion, MEN is as good as gone. If MEN goes wanting, then it’s entirely possible Nortel may have keep it.

Update: According to the Globe & Mail, Nortel’s on a “fast-track” to sell MEN:

“We’re on to a fast track process,” Philippe Morin, president of Nortel’s MEN unit, told the Report on Business. “Making it public, one of the benefits of this, [is] we’ve actually now had people raising their hands interested, which we’d not thought of [before]. We’re getting more interest. But the sooner we can do this, the better for both the employees and our [customer] base.”

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commentor

Narf9. I agree with you. Philippe -despite his deadly mistakes of over investing on HDX for years with ZERO return and depsite his lack of none 40G vision- he always wanted to run his own ship (the very creating of MEN i an eaxmple). I think this move is great for Philippe and his very close net of people who worked with him for 15years or more, but it is still a bad move for Nortel. I do think the entire MEN group can be picked up as an R&D group leaving sales to the new buyer to figure out.

The sad thing, Optical layoffs was done for long time based on favoratism. Just check around the old Optical land scape in Ottawa (Nakin and dead startups a as an example) and you will wonder how come these people left the MENteam?. The answer is: they were not part of the Montreal Gang, they were not part of Philippe close group. And this is what may happen again.

No matter what we say, selling MEN is bad for Nortel, Great for Optical Execs and top mgmts, and unknown for MEN employees

Another Nortel Watcher

narf9 - I understand what you're saying. But just because Philippe and Dino want it to happen, and MZ is stupid enough to allow it to happen, doesn't mean that it's good Nortel shareholder value.

Leaving Nortel will be one of the best things that could happen to the MEN team as long as the current Nortel regime is in place... and I think one of the worst moves for Nortel shareholders.

narf9

Hey wake up! NT is not in the process of ditching MEN, MEN execs and Ottawa middle management can't wait to cut NT loose. They've always gone their own way, had their own culture and have been hard to manage from the US boardrooms. Philippe, Dino and the gang are probably drooling over the prospects of being unleashed, and NT Corp USA would be happy to take the cash and cut them loose. Its a win-win no-brainer. Too bad 100GE won't bring any ROI for 5+ years.

junk

there is more interest. call 1-800-GOT-JUNK

exnt2

Clint, I know from my friends whose companies were acquired. What happens is they offer you a package or a transfer to the new company with minimum one year guarantee. If you take the latter, you sign the papers. After one year if you are in the lucky few things continue. If not its bye bye.

Most people take the one year guarantee, which is also not so bad if you plan on leaving.

Clint

Interesting scenario.
If that is the norm it will probably happen at Nortel.
Easy way for NT to get out of paying packages.

Nortelhand

Nortel is in a very bad spot, it is having a fire sale. Nortel is out of options, it is now bruning up the good stuff to keep the doors open. Mike Z has done a great job. Notice how management still does not step in and buy the common. That is a very strong signal to everyone. This PIG is walking dead.

Clint

exNt.2,
I think you are wrong about that.
There are labour laws in Canada.
If you were sold off without a package I believe Nortel is liable.
That is still tantamout to laying you off.
If your service was not transferred I can't see how Nortel could get away with that.
I guess it all depends on the buyer and the contract.
Alot of you people in here paint a dark picture.
You could be right, but you could also be very wrong.
Lots of negative speculation in here.
Nothing positive. But easy to see why given the names of the posters.

exnt2

Also warning to MEN employees. You may not get a package when you move to the new company because its a given that your time starts when you get hired. Maybe a year guarantee but after that its two weeks notice. Somehow I do not think its going to be a very cosy work place like it is now.

exnt2

I somehow do not think a buyer has been found yet. Its the same old Nortel management. Kill the business with bad pre-announcements. Been there, seen that.

Its going to be a tough sale and my wet finger guesstimate is close to $1 billion tops in cash with some equity. I know where people like Morin come from. Its just the poor desperate salesmanship to get others to jump onto the bandwagon since this prized asset may be gone.

What would be really amazing is when these Nortel execs move over to the new company. They will make a total mess of their business. So I'd short their stock as well. Its guaranteed.

more

Is Nortel trying to sell MEN in the classified ads alongside used Chevy conversion vans and somebody's 8-track collection? Wall Street has a process for selling off arms of businesses, and it's a tight knit group of cronies who all buy and sell from the same dope dealer. If Phil M is honest that NT has additional interest because they're "making it public," then Nortel needs to implement a fast track process to find another broker who can really close MEN as close to FMV as they can.

Any company that would have done this optimally would have made the public announcement *after* a buyer had been found.

Clint

The Article isn't about Nortel.
It is about a business unit they are trying to sell off.
Nortel has too many problems and they are not addressing them the proper way.
The reason MEN barely breaks even is due to the Nortel Boat Anchor and groups within MEN that are not relevant. The 40G/100G Technology is what this is all about. I would not be suprised to see selective components of MEN bought. You buy the whole thing your analysis rings true assuming the buyer is flacid. You buy selective parts, and the buyer is legitimate, your analysis holds no water. Perhaps the answer is somewhere in the middle. Perhaps it is to the right. Perhaps it is to the left. The business is worth something. Nobody is dumb enough to put something up for sale if they know they are going to lose. If it was a desperation Sale, they would have sold off CDMA (Still may) since they would get more cash for it. It is still the Nortel Cash Cow even though sales are flat. That is how they would make the most money right now. Huaweii would buy NT CDMA in a heartbeat to further cement the stranglehold they now have in China.

broadbandbill

Jayemmay,

Dude, you misunderstood; my hand has been squarely by my side ever since Mr. Hyper-concocted was hired. Seen his kind before, dead bodies all over - never a pretty picture…--bb

Another Nortel Watcher

bb - you and me both... this CTO is all talk and no execution. Lemme think, what's the term for that? Oh yeah, 'hype'.

Has anyone noticed that this CTO hasn't attracted a single noteworthy person from outside since joining Nortel? Did I miss it? Is anyone else left in the CTO team?

jayemmay

Anyone who thinks this is a good time to buy Nortel stock, please raise their hands.

One of the uses of proceeds from the sale of the MEN division is for laying off more employees. Layoffs, asset sales, dismal finances. I would say there is no hope for Nortel.

Morin's statement, "Making it public... we've actually now had people raising their hands interested, which we'd not thought of [before]." Broadbandbill, did you raise your hand? Ex-Nortel and exnt2 listed the likely possibilities. Morin apparently, could not figure that out without a public announcement.

By the way, it is my observation, that Bo Gowan at Buzzboard is not posting comments anymore. Previously, each of his blogs would generate comments. But not the most recent two. I suppose there were too may unhappy, critical comments,so he seems to have thrown in the towel.

jayemmay

Bo Gowan

jayemmay - actually no...comments submitted have dropped off this week (imagine that). If you'd like to post a comment feel free. Unless you are a first-time commenter on Buzzboard, your comment goes live automatically.

ex-Nortel

Unfortunately, Nortel has severely diluted the potential value of MEN by publicly stating that it has to be sold, and via 'a fast track process'. There are few buyers with the cash on their balance sheets who might be interested in MEN (Ericcson Nokia, and Hitachi), and they are in no hurry buy a distressed asset that becomes cheaper by the day. Especially in light of declining global telco equipment sales. They can wait and watch Nortel squirm.

No private equity firm will look at taking on MEN as a stand alone business. Too much risk and not enough reward to build a business out of a stand alone orphan that barely breaks even. In this tight credit market, private equity would only look at MEN at a severe discount to cover the cost of capital to buy and restructure (yes) MEN. That means at a price less than $700M - so this eliminates a private equity buyer unless total desperation sets in.

They will be lucky to get $1B+ in the current environment from an interested telco equipment vendor.

And of course, they are currently tanking their sales by letting their competitors position Nortel as someone who wants to be out of the market. You can bet competitors are putting a nasty spin on Nortel's desire to sell off MEN.

Clint

Saying "getting more interested" is one of two things.
A smokescreen (if so very well done) or an admission that there is lots of work to do. Hard to say what is going on.
Some people say a deal is done but they have not announced it.
Some people say they just have interested parties, nothing else.
Some people say they have some real good prospects.
Some people say Nortel won't be able to sell it unless they give it away or unless
specific chunks are hacked out.
Some people say it cannot be sold in todays environment.
Lot's of interesting dissection to come.
The chinese do not have what Nortel has yet. They don't have this technology but you can bet you A** they are scheming to steal it, copy it or whatever. Buying it is their last choice.

broadbandbill

This may be a real ‘Survivor’ story; participants join forces to finish a weakened competitor by voting him off the (optical telecom) island.

What company in their right mind would weaken their balance sheet just to buy futures in today’s Capital Markets environment. If the credit markets were gushing with cash perhaps a different story. The Chinese already have what MEN brings, they stole it two years ago. Nortel cannot sell MEN, and other than hyper-(dis)connectivity, they can’t sell much of anything, period.

The only person that can sell MEN is Philippe Morin and no one else. Problem is he is NOT a sales guy evident by his naïve remarks about ‘getting more interested’. That is a sure sign of desperation. To get buyers he needs to state that no one is interested and watch them line up. ‘More interest’ creates a beauty contest and no buyer wants that. Keep it low, quite and make each interested party feel they are the only one in the game. Sacrebleu! Just watch Survivor…--bb

Clint

If they don't sell the business within a month chances are they will not get a preferred buyer, less cash than they bargained and possibly the worst scenario, they have to keep the business while the rest of the company sinks.
I give them a month from now to make it happen.

exnt2

could be private equity. not too many buyers can make the cut. the usualy suspects below. its going to be tough to sell for an all cash deal. if its a garage sale then maybe a different story. but that means Nortel loses on the deal if it breaks up MEN and sells it in pieces.

JDS - weak so no no
Ericsson - focused mostly on wireless so unlikely
Ciena - too small so may only want optical piece
Huawei - bound to be blocked by government. Say goodbye to contracts.
Cisco - likely to bef up optical story
Alcatel - cannot at this time
Nokia - pure wireless play, not interested
Tellabs - in as much or deeper doo doo
Flextronics - maybe if they vertically integrate but challenging
Fujitsu - likely to get optical technology and footprint