MEN Sale Struggling

By Mark Evans | Published: October 9, 2008

According to a story in the Financial Times, Nortel’s efforts to sell its metro Ethernet network business isn’t going well.

Citing two investment bankers not involved in deal, the sale has “stalled” or it’s “lukewarm”.

Given the volatile capital markets environment, this should not come as a major surprise. As well, you have to believe Nortel is looking to get an attractive price – let’s say $1-billion to $2-billion – for MEN, which will be a challenge.

The FT quoted one of the investment bankers as saying MEN is worth $700-million in a “good” market, and it has attracted 10 bidders with “lukewarm” interest.

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  • The Psychiatrist

    Mark

    I actually see this as a positive for Nortel,if there are indeed 10 parties interested it shows respect for Nortel's leading technology in MEN.Furthermore because the possibillity that Huawei might be a strong candidate for purchasing the unit,this might force the value of it higher inspite of the current economic environment as I would expect a North American buyer to outbid Huawei so as to prevent them from gaining headway in N.A and thus preventing price erosion once Huawei would have gained a solid position in the North American market as a result of the purchase.

    In other words it is in the best interest of North American competitors to see to it that Huawei is the last resort to buying Nortel's MEN unit,and I hope that management is smart enough to play this to their advantage and get top value for it,even in a less than ideal economic environment.

    At $700 million,this was still just about equal to Nortel's total market cap.

    Shows how undervalued the company is right now.

  • Nortel-don't -go

    This should be great news to those who think selling MEN is a bad thing.

  • Agast

    Someone is illeigally engaging in disclosure if this article is true. Care to name the two “non-involved” investment banks, or should the Mounties visit you?

  • Another Nortel Watcher

    Why would the Mounties want to visit Mark for reporting on details of a Financial Times article?

  • http://www.allaboutnortel.com Mark Evans

    That's what I was thinking too. :)

  • exNorteler

    “At $700 million,this was still just about equal to Nortel's total market cap.

    Shows how undervalued the company is right now.”

    The psychiatrist, said the above. Good point. The psychology of the market shows irrational fears.

  • notafan

    actually, the psychiatrist's reasoning makes no sense, regardless of his conclusion:

    when you buy MEN for $700 million, you're not buying nortel's debt, which is billions of dollars. $700 million is just a figure in nortel's assets.

    having said that, at equity of $2.5 billion and market cap of under a billion, nortel is probably undervalued, but my point is that comparing the market cap with a figure in assets doesn't tell you whether a company is undervalued or not.

  • The Psychiatrist

    “when you buy MEN for $700 million, you're not buying nortel's debt, which is billions of dollars. $700 million is just a figure in nortel's assets.”

    true,but your also not getting access to Nortel's cash of which is expected to be between $2.6b-$2.9b as well as Nortel's other assets and intellectual property.

    If you view the sale of MEN for about $700m as a distressed one considering current market conditions,then it is safe to assume in that context that the whole of Nortel is actually undervalued at a market cap slightly above the purported $700m value for MEN alone.

  • notafan

    i don't know if it's just me but i find that what you're saying just makes no sense. don't get me wrong. i'm not an expert in these things, i'm just simply speaking based on what i got out of a second year accounting course.

    it doesn't matter how much MEN is worth, or how close it is worth to nortel's market cap. lets just imagine MEN is worth a trillion dollars but yet nortel's equity was a million. with the market cap of a billion dollars, i would not say nortel is undervalued because MEN, a part of nortel, is worth a lot more than the market cap, but rather i would say nortel is overvalued because the market cap is a thousand times its equity.

    like i said, assets don't say anything about a company being over/undervalued, unless you look at its liabilities. and with the two, you pretty much get 'equity'. thats pretty much all i remember from my accounting course.

  • pm

    Nortel has bottomed out ! The Dow was down close to 700 points today yet Nortel gained 7.6% on the NYSE ! Get in now or forever hold your peace :)

  • Another Nortel Watcher

    Yes, I would think that Nortel has about bottomed out for the time being. However, investing in Nortel right now is about as safe as putting your money on red or black and spinning the roulette wheel. The next major event will be the 3Q results call. If that goes badly, the value of the company will plummet to new depths. If it goes well, you could double your money in a few days. Like I said, roulette. Just like all the other penny stocks. Do you feel lucky?

    Nortel needs a solid growth strategy to stabilize its stock value. Without that, financial performance prediction is just a big emotional guess on quarterly cost-cutting performance.

  • ex-Nortel

    I had stated that MEN was worth perhaps $700M in an environment in which Nortel was not a desperate seller and there were interested buyers. Unfortunately, Nortel is desperate and there are no interested buyers at $700M. The reasons is that any party that might want to buy MEN now believes that it can buy the MEN unit a lot cheaper from a bankruptcy court or from a private equity firm attempting to quickly recoup capital.

    And of course, the value of MEN goes down everyday as its sales levels decline.

  • exnt2

    I had said 650 million. I'd think with the conditions now, it will go for a fire sale price of 400-500 million cash + equity deal. not much from Nortel expectations but depends upon how desperate they are.

  • exnt2

    nobdy can make any sense of what you wrote.

    Nortel is worth $800 million in market cap
    Nortel purchase today is $10 billion incl cash, debt, equivalents

    MEN is 15% of Nortel in terms of sales. So a ballaprk price is $1.5 billion, which coincidently is 15% of total revenue and Nortel valuation.

    The lower MEN revenue and Nortel revenue / share price goes, the lower the valuation.

    I would peg the unit at $650 million as I would not pay for any Nortel debt baggage, which would be roughly $900 million allocated to MEN.

    All I have to do then is wait till this sinks lower to about $500 million to get a really sweet deal.

  • exnt2

    I had said 650 million. I'd think with the conditions now, it will go for a fire sale price of 400-500 million cash + equity deal. not much from Nortel expectations but depends upon how desperate they are.

  • exnt2

    nobdy can make any sense of what you wrote.

    Nortel is worth $800 million in market cap
    Nortel purchase today is $10 billion incl cash, debt, equivalents

    MEN is 15% of Nortel in terms of sales. So a ballaprk price is $1.5 billion, which coincidently is 15% of total revenue and Nortel valuation.

    The lower MEN revenue and Nortel revenue / share price goes, the lower the valuation.

    I would peg the unit at $650 million as I would not pay for any Nortel debt baggage, which would be roughly $900 million allocated to MEN.

    All I have to do then is wait till this sinks lower to about $500 million to get a really sweet deal.

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