Here’s the interesting and troubling thing about Nortel apparently seeking advice about bankruptcy protection: with the possibility now firlmly in the public domain, how will customers and suppliers react given they were already concerned about Nortel’s viability.
Light Reading nails it by suggesting that “taking legal advice on potential bankruptcy proceedings will surely only dent customer, supplier, and partner confidence in the company’s ability to weather the current economic storm”.
Light Reading suggests “there’s an air of desperation about the company, which is pumping out press releases at an increasing rate and even sending email reminders to journalists pointing out how carriers are still showing faith in the company”.
As well, the news also deals a major blow to Nortel’s efforts to sell its metro Ethernet network business – a move it wanted to make to generate some much-needed cash. Now, buyers are simply going to wait it out.
As for Nortel’s future, the Globe & Mail suggests that a number of investment bankers have put together M&A models using with two different sets of assumptions:
Scenario #1 is a purchase of Nortel as a going concern, with the buyer able to make use of Nortel’s enormous tax losses.
Scenario #2, the doomsday model, involved buying Nortel out of creditor protection, shorn of its debts and its pension obligation.
Nortel shares (NT/NYSE) have dropped 14 cents, or 22%, to 50 cents in late-morning trading. The company’s market cap is now $248.7-million. (Note: The share hit a record low of 37 cents before closing at 40 cents.
Update: Nortel’s Bo Gowan has a post on Buzzboard about the WSJ story and Nortel’s strategic focus.
There is a third option and a fourth option. In the third option, Nortel enters into Chapter 11 and parts are sold off piecemeal via Bankruptcy 363 sales. The assets are sold to the highest bidder without any liabilities. What is left over can either be a stand alone company or liquidated.
The fourth option is a straight forward Chapter 7 liquidation to pay off all of the creditors.
Because of the caveats on Nortel's debt, no one is going to buy Nortel at any price. A patient competitor could buy MEN or CDMA for peanuts as the highest bidder and would not have to worry about bloated head count, pensions, etc.
Nortel's is worthless anyway. It is time for the BOD to put Nortel into bankruptcy and save the company.
TongueInCheek
Nortel has stated numerous times that they have no covenants on their debt. Even a number of market analysts agree with that statement. Yet you say they do have caveats on their debt.
Since you claim to be "Ex_Nortel" what information do you have as proof they actually do have caveats on their debt? Perhaps you can share your contradictory information so it doesn't come across as pure FUD.
Nortel watcher
Ex_Nortel, If the company is worthless, which I agree it is due to the $4B net it has in longterm debt, then I fail to understand how CH. 7 can be an option - there are not enough assets given what these are worth today.
joremero
well, the notice of NYSE delist isn't going to help much...
LaoTseu
Wall Street journal doesn't mention its source of information, but it does not matter: you can see today many media just doing a copy/past of the article... Then a "noise " becomes a fact ...with the current nervousness of the market this is transated in -23%.
I'm not sure the WSJ measure the disastrous impact of their "breaking news" on REAL economy.... Are they not the ones who predicted the oil at 200$ last summer ?
protosphere
Can there be a scenario #3, where Nortel simply ceases to exist like so many other yesteryear darlings.
Can the industry neglect the billions in sales to perhaps acquire their markets through attrition as the least expensive means during these tough times?
Can Nortel shake their creditors and operate as Air Canada had done to rise from the ashes and become a great company again or would paying prioritized obligations inhibit them from doing this.
North America’s largest maker of phone equipment, is working with Lazard Ltd. and law firm Cleary Gottlieb Steen & Hamilton on options, including a possible bankruptcy filing, according to people familiar with the situation.
Nortel lost 97 percent of its market value this year as customers reined in spending and switched to newer technology from Cisco Systems Inc. and other rivals.
Nortel has posted almost $7 billion in losses since Chief Executive Officer Mike Zafirovski took over in 2005, fueling speculation of a bankruptcy.
“The bondholders also might prefer bankruptcy because then they are first in line for assets.”
Jay Barta, a Nortel representative, declined to comment. The Wall Street Journal reported that Nortel was exploring a potential bankruptcy filing last night
“If Nortel is to go into formal bankruptcy, the question then is will they be given the time to effectively restructure, cut costs or sell divisions,” McWhirter said.
The challenge is that too many asset sales may conflict with its debt covenants, said Sue, who cut his target on the stock price to $0.
brett5
aren't there other options too?
Nortelguy
I hope to god there are & we announce something solid soon. This bankruptcy rumour will potentiially cost me $6m in orders prior to y/e, as customers are getting very twitchy
joremero
it's true that rumors are enough to send a company into a tailspin...
Nortel watcher
Nortelguy, I'm confused. Two weeks ago, you said on this blog that you had submitted your resignation at NT 2 months earlier. Thus, you were on your way out. Now, you are telling this blog that you are hoping to close some business before yearend? What gives, Nortelguy?
Nortelguy
I am currently working my notice (3 month notice period). It is a case of all hands to the pump at the moment to close Q4 as strong as possible. It makes perfect sense to me to continue to generate & close Q4 business whilst I am employed by the company (ultimately, it benefits me in commission payments). With a following wind, I should leave the company at y/e on somewhere around 105% target.
Am I pleased that I am leaving NN? Absolutely right, I am
Will I compromise my professionalism during my notice period? Absolutely not
At the end of the day, the company has requested I work my notice. I'm not over the moon about that, but whilst I remain in the employ of the company, I will continue to hit as hard as ever before.
The End of the Line?
Here’s the interesting and troubling thing about Nortel apparently seeking advice about bankruptcy protection: with the possibility now firlmly in the public domain, how will customers and suppliers react given they were already concerned about Nortel’s viability.
Light Reading nails it by suggesting that “taking legal advice on potential bankruptcy proceedings will surely only dent customer, supplier, and partner confidence in the company’s ability to weather the current economic storm”.
Light Reading suggests “there’s an air of desperation about the company, which is pumping out press releases at an increasing rate and even sending email reminders to journalists pointing out how carriers are still showing faith in the company”.
As well, the news also deals a major blow to Nortel’s efforts to sell its metro Ethernet network business – a move it wanted to make to generate some much-needed cash. Now, buyers are simply going to wait it out.
As for Nortel’s future, the Globe & Mail suggests that a number of investment bankers have put together M&A models using with two different sets of assumptions:
Scenario #1 is a purchase of Nortel as a going concern, with the buyer able to make use of Nortel’s enormous tax losses.
Scenario #2, the doomsday model, involved buying Nortel out of creditor protection, shorn of its debts and its pension obligation.
Nortel shares (NT/NYSE) have dropped 14 cents, or 22%, to 50 cents in late-morning trading. The company’s market cap is now $248.7-million. (Note: The share hit a record low of 37 cents before closing at 40 cents.
Update: Nortel’s Bo Gowan has a post on Buzzboard about the WSJ story and Nortel’s strategic focus.
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