De-listed, De-lightful, and De-Lovely?

Thanks for the information Duncan. One thing I'm curious about but haven't yet found an example is related to currency used on their books.

Assuming that Nortel trades on the TSX only, would they need to change their reporting currency to Canadian funds even though they are a multinational?

it was a 10 X 1 reverse split, not 20 X 1

No — there are other Canadian companies that trade only on the TSX but whose reporting currency is US$. Any company who has the vast majority of their revenues transact in US$ can reasonably choose to report in US$ in order to avoid having goofy reported earnings due to currency swings.

US GAAP is a separate matter, of course.

I know the LAST consolidation was 10 for 1. But if they did another one in order to stay on the NYSE, 10 for 1 only gets them to US$4.00. For a variety of reasons, most companies that do reverse splits try to get their share price to about $10 (more or less.)

So my 20 for 1 conjecture relates to a future consolidation, not the Dec 1, 2006 event.

That IS a long post — and I have to make my kids dinner in a while, so forgive my relatively brief reply!

The short version is that most analysts (myself included) are not expecting Nortel to achieve that ~5% operating margin in 2009 (nor is that likley to be the number for full year 2008!) Not because we hate Nortel or are biased against them, but because the current global economy and the current telecom equipment markets are not what they were even 6 months ago.

As we've already seen from NT's Q3 results (and Alcatel etc) the spending slowdown was sudden and deep. Nortel's Q3 op margin was only 0.7%, and Q4 will almost certainly be quite a bit worse. One only need look at Cisco and their guidance to understand that this is hitting the entire industry.

Given what we know, Q4 OM is likely to be negative – maybe even negative 5-10%? Q1 is a historically weak quarter, and I expect OM to be more or less the same as Q4. Most economist say Q2 will still be weak. Q3 tends to be seasonally weak as well, even if the global economy is recovering by then. Even if Q4 is decent +5%?) the first three quarters will have produced enough negative OM that the full year 2009 OM is likely to be a negative, and not by a little. All of this includes potential cost savings from Nortel's restructuring.

In terms of an MEN sale, anything is possible. Maybe not selling now will turn out to be a good decision. But that requires that the economy and the M&A markets get better (which is not guaranteed) and that MEN performs strongly even though it is up for sale and linked to a company with some PR perception issues around long term survival.

your final question, about getting money from the Canadian government is a good one. We already know that this is the time for bailouts, and in my view Canadian jobs and future prosperity would be as well served by giving aid to Nortel as they would be by giving money to the auto sector. Cheaper too — Nortel doesn't need nearly as much dough as GM, Chrysler and Ford do!

I hope this helps — I am off to go make salad!

Mark, I don't think delisting on the NYSE means no more US GAAP accounting. If you are a US company (as NNL is) you have to cough up the dough for the accountants, imho. So some savings yes, but millions of dollars – probably not. Negative is . . . many investors will not be able to participate, i mean, gamble in this casino.

Duncan, I don't think delisting from NYSE means saving millions on accountants, i think you'll still need US GAAP accounting as long as you are a US corp, like NNL certainly is. If they restructure completely and abandon the NNL, then maybe, but i don't see that happening.
Your other points are very valid, thanks for a good post.

I in that agree the monetary value at 4 cents presplit is hardly beneficial when they diluted 100M shares a year at a by far higher value only a few years ago. This was under their claim “to keep good people”, At 6 or 7 or 8 dollars a share presplit, that is an awful lot of money, over half a billion a year. Needless to say, hardly worth diluting into these days at 4 cents presplit. Heck, they printed Nortel paper to pay $575M cash portion in the fraud settlement so did fraud pay given they diluted more than this! I have questioned and surprisingly heard no comment from anyone about this to date over the last few years!

Aging CDMA accounted for 80-90% of their EBT (almost all of their earnings!) analysts called their “cash cow” and “gravy train”, now “going out to pasture”. Add CDMA's recent steep decline in favor of GMS, after already losing money for a decade that they resorted to high interest printing paper to further burden an already negative cash flow and selling assets to live another day in their struggle. Now they can not even sell this key asset to ill afford for more ongoing payoffs for layoffs, as their traditional future aspirations vaporize in contradiction, etc., I think the bottleneck has finally choked them with no way out with their stock price posing further burden.

I should also think their image will take a major hit with customers seeing them delisted on such a large and liquid NYSE. Perhaps eliciting more fear in that they simply won't be around soon catalyzing their decline. What cash or business will be left after this perfect storm settles.

Given increased competition, how much core business is left after CDMA to bank on even after throwing in the towel.

Will NT burn their relatively little cash remianing to make restructuring under bankruptcy protection unviable. Dare I question if this might alleviate even more exposure to their plagued numbers even the lenient SEC finally monitored. How will the trustee deal with these long extended repair of numbers to determining remaining assets when almost a year and a thousand accountants couldn't get it right straight, followed by downplayed estimates that doubled, worse every time counted, by the week.

Researching bankruptcy followed a NYSE delisting notice must surely wreak havoc and do a number on their customers. This was followed by the desperate green CEO's primal scream to employees to try harder like they are slackers or something.

They can not generate new business or stave off the decline in business beyond their control. Can't sell paper or assets and I doubt anyone will entertain a 20X reverse stock split at one of their kangaroo AGMs just to keep listed, for all the good it would do as you well illustrate.

Mark, I don't think delisting on the NYSE means no more US GAAP accounting. If you are a US company (as NNL is) you have to cough up the dough for the accountants, imho. So some savings yes, but millions of dollars – probably not. Negative is . . . many investors will not be able to participate, i mean, gamble in this casino.

Duncan, I don't think delisting from NYSE means saving millions on accountants, i think you'll still need US GAAP accounting as long as you are a US corp, like NNL certainly is. If they restructure completely and abandon the NNL, then maybe, but i don't see that happening.
Your other points are very valid, thanks for a good post.

I in that agree the monetary value at 4 cents presplit is hardly beneficial when they diluted 100M shares a year at a by far higher value only a few years ago. This was under their claim “to keep good people”, At 6 or 7 or 8 dollars a share presplit, that is an awful lot of money, over half a billion a year. Needless to say, hardly worth diluting into these days at 4 cents presplit. Heck, they printed Nortel paper to pay $575M cash portion in the fraud settlement so did fraud pay given they diluted more than this! I have questioned and surprisingly heard no comment from anyone about this to date over the last few years!

Aging CDMA accounted for 80-90% of their EBT (almost all of their earnings!) analysts called their “cash cow” and “gravy train”, now “going out to pasture”. Add CDMA's recent steep decline in favor of GMS, after already losing money for a decade that they resorted to high interest printing paper to further burden an already negative cash flow and selling assets to live another day in their struggle. Now they can not even sell this key asset to ill afford for more ongoing payoffs for layoffs, as their traditional future aspirations vaporize in contradiction, etc., I think the bottleneck has finally choked them with no way out with their stock price posing further burden.

I should also think their image will take a major hit with customers seeing them delisted on such a large and liquid NYSE. Perhaps eliciting more fear in that they simply won't be around soon catalyzing their decline. What cash or business will be left after this perfect storm settles.

Given increased competition, how much core business is left after CDMA to bank on even after throwing in the towel.

Will NT burn their relatively little cash remianing to make restructuring under bankruptcy protection unviable. Dare I question if this might alleviate even more exposure to their plagued numbers even the lenient SEC finally monitored. How will the trustee deal with these long extended repair of numbers to determining remaining assets when almost a year and a thousand accountants couldn't get it right straight, followed by downplayed estimates that doubled, worse every time counted, by the week.

Researching bankruptcy followed a NYSE delisting notice must surely wreak havoc and do a number on their customers. This was followed by the desperate green CEO's primal scream to employees to try harder like they are slackers or something.

They can not generate new business or stave off the decline in business beyond their control. Can't sell paper or assets and I doubt anyone will entertain a 20X reverse stock split at one of their kangaroo AGMs just to keep listed, for all the good it would do as you well illustrate.