Boom! Nortel Files for Bankruptcy Protection

By Mark Evans | Published: January 14, 2009

While not surprising given the speculation, it is still a stunning development that Nortel has, in fact, filed or bankruptcy protection.

The company made the Chapter 11 filing through its U.S. subsidiary in Delaware, while its Canadian units will seek court protection later today.

So, what now?

Are we looking at an asset sale to scrape as much value as Nortel can for bondholders and other creditors? Or is there a possibility that Nortel could emerge from bankruptcy protection as a smaller, but viable, entity?

Here’s an excerpts from the Nortel press release:

Nortel made this decision with the unanimous authorization of its Board of Directors after thorough consultation with its advisors and extensive consideration of all other alternatives. This process will allow Nortel to deal decisively with its cost and debt burden, to effectively restructure its operations and to narrow its strategic focus in an effective and timely manner.

The Company commenced a process to turn around and transform Nortel in late 2005, and the Company made important progress on a number of fronts. However, the global financial crisis and recession have compounded Nortel’s financial challenges and directly impacted its ability to complete this transformation. Nortel is taking this action now, with a $2.4 billion*** cash position, to preserve its liquidity and fund operations during the restructuring process.

“Nortel must be put on a sound financial footing once and for all,” said Nortel President and CEO Mike Zafirovski. “These actions are imperative so that Nortel can build on its core strengths and become the highly focused and financially sound leader in the communications industry that its people, technology and customer relationships show it ought to be. I am confident that the actions we’re announcing today will be the fastest, most effective means to translate our improved operational efficiency, double-digit productivity, focused R&D and technology leadership into long-term success. I want to reaffirm Nortel’s dedication to delivering world-class solutions and services to customers.”

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  • joremero

    Holy CRAP!

  • joremero

    Even though Mike Z has some blade, I do want to mention that the current financial crisis really helped to push NT to go BK. NT had no play on creating the crisis and it's just an innocent bystander….thanks Govt and regulators for doing such a job job on crashing the economy.

  • Another_Nortel_Watcher

    Nonsense, this is nothing to with the crashing economy. This is about an inability to manage margins for an $8-$10B annual business, combined with a failure to evolve the businesses beyond their legacy cores.

    No vision, no insight, and failed execution. Yet another wrecked company at the hands of a GEnius. So much for Jack Welch's legacy.

  • Still_waiting

    Sounds like a six sigma Blackbelt opportunity in the making.

  • Many

    What do you want to bet Zafirofski and Hackney find a way to get a raise out of this (certainly not a pay cut)?

    “….to effectively restructure its operations and to narrow its strategic focus in an effective and timely manner.”

    Exactly how has this changed something you have failed to do for the last three years?

    “……I am confident that the actions we’re announcing today will be the fastest, most effective means to translate our improved operational efficiency, double-digit productivity, focused R&D and technology leadership into long-term success. I want to reaffirm Nortel’s dedication to delivering world-class solutions and services to customers.”

    Fool me once……..

    To the employees; I truely mourn this turn of events. What a travesty. I know you tried.

    To the BOD; this is your fault. you put Zafirofski in there and left him in there when he was clearly in way over his head.

    To the management: You should be ashamed, all of those MBAs and you couldn't manage your way out of a paper bag.

  • felixmk

    You are 100% wrong. The economy might have accelerated bankruptcy, but it was coming anyway. Nortel's stock and debt crashed before the credit crisis.

  • exnt2

    A message just popped up on Z's and his buddies computer screens.

    GAME OVER.

  • felixmk

    Agree. I smell “RETENTION BONUSES” coming for all the poor execs: MikeZ, Hackney, Lowe, Pangia, Edwards, Dennis Carey, Riedel, Flanagan, MacKinnon.. We need to keep these KEY Execs or someone will hire them away from us and Nortel will surely go into bankruptcy..err..scratch that.. I hope they just throw these bums out and ask the remaining employees to elect some execs that have some intelligence and integrity.

  • felixmk

    I read the announcements and looked at the Mike Z video on the Nortel website. I did not hear or read the words “sorry” or “regret” or anything similar. Mike and the management team do not seem to have any conscience about the damage they have inflicted on shareholders, employees, and customers. Seeing Mike's video, it sounds like they are treating bankruptcy as just another step in a successful plan. The bankruptcy seems to be blamed on “current business conditions” which is a load of cr@p. The bankruptcy is a result of bad decisions and bad management by Mike Z and his team, and previous CEOs and their teams. This kind of “don't blame us but pay us big $$” approach sickens me. Responsibility is dead, long live corporate greed!

  • Another_Nortel_Watcher

    Well put. If I ever come across either of those two jokers, they better duck because my shoes will be headed in their direction.

  • yes4aapl

    There is nothing to cry about
    BK is the best solution for all parties involved.
    I know, I sound like a broken record.

    I have posted that before BK and I will write it again now after the BK announcement
    Shareholders can't be angry, they will be freed from their 24/7 obsession to watch their investment bouncing up and down with the total portfolio value at $100
    Customers have clear view that Nortel will restructure and serve them in the future.
    Bondholders will get the foot in the door for new Nortel stock in the future (example AirCanada scenario and Duncan S explaining that here
    http://disqus.com/people/67a33c3b4aff98d4c56f15… )
    Employees can still have jobs if they want to.. example R&D will stay in tact.
    and so on…
    so why Nortel's employees on this board hated that solution so much and hated the messenger who talked about it
    yes4aapl
    btw
    Do you think you can hate aapl?
    try it!
    It's the best stock to invest your money for the long run!
    example
    smart phones
    or IPods
    …
    iLove the iPod touch. I use it anywhere anytime to check my email and browse the internet….
    Thatk you Steve Jobs for that one!
    btw
    I hope the Psychiatrist will come out of the hiding and admit what's the obvious here
    NT is BK and he was just wrong!

  • Troller

    Question re: the role of the Board of Directors in Chapter 11:

    Traditionally the BoD represents the interests of the shareholders. Those shareholders have effectively been wiped out. So, in today's reality, to whom do the BoD now owe a fiduciary duty?

  • less

    It went “BOOM!”

    Warning, Warning, Sensationalist yellow journralism alert. </TIC>

    When I Googled the NT ticker (ancient daily ritual of mine) and saw the long-dreaded flatline I heard, at best, the deflating of a leaky whoopie cushion, you know, the one disappeared under some unwashed socks in the laundry room months ago, after some frat party… No, wait. Holy cow! That thing dates back to the Y2K party! How time flies when you're having fun.

  • grimm_reepr

    What a sob-fest…..”great employees…evil management”….blah blah blah. Most Nortel employees were overpaid prima-donnas, and now they have to deal with employment reality. Do not shed a single tear for this entitled whiners…..

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  • http://billfixer.com/ Toronto Bankruptcy

    I just think Nortel really need to be sold quick. They are hanging there for too long.. or they will have to come up with something new.

  • http://billfixer.com/ Toronto Bankruptcy

    I just think Nortel really need to be sold quick. They are hanging there for too long.. or they will have to come up with something new.

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