An Analyst Reflects on NT

By Mark Evans | Published: January 20, 2009

If you can get hold of it, Dundee Capital Markets’ Tom Astle provides some interesting perspective on Nortel – a company he covered 15 years before throwing in the towel in 2007.

A particularly interesting excerpt is Astle’s final thoughts on Nortel and its future:

Equity Shareholders don’t come first

Finally I think it’s appropriate – especially at this juncture to remind investors that when companies get into the kind of pickle NT is in, management is likely not spending one moment worrying about its equity holders. It has to focus on those that control its destiny – specifically the debt holders and some employee obligations.

My guess is that the likely outcome is that Nortel is NOT broken into pieces and sold off in a fire sale, as this is terrible market for asset sales. But rather that NT works out a deal with the major debt holders to give them pennies on the dollars (both in new secured debt and a little cash) and BIG whack of new equity – effectively diluting existing equity holders down to next to nil.

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  • joremero

    does anyone else find it funny that NT's biggest creditor's (Bank of Mellon) ticker is BK? ( http://finance.yahoo.com/q?s=bk)
    lol sorry for the out of topic…

  • Casual_Observer

    Reuters
    Nortel faces squeeze as key supplier pulls back
    Tuesday January 20, 3:26 pm ET

    By Wojtek Dabrowski
    TORONTO (Reuters) – Looming changes to the relationship between Nortel Networks Corp (Toronto:NT.TO – News; Toronto:NT.TO – News) and its biggest supplier could tighten the vise on the ailing telecom equipment maker as it tries to restructure in bankruptcy protection.

    Flextronics (NasdaqGS:FLEX – News), a contract manufacturer that supplies about 75 percent of Nortel's finished product around the world, warned last week it is working to reduce its exposure to the Toronto-based company after Nortel filed for court protection from creditors.

    As part of reducing that risk, Singapore-based Flextronics has chosen to terminate “certain arrangements” as of July, Nortel announced on January 14, without providing specifics.

    Nortel did say it has agreed to buy $120 million of existing inventory from Flextronics by July and to make other quarterly purchases.

    Flextronics also revealed it has retained private-equity firm Blackstone Group (NYSE:BX – News) as an adviser to assist it with how to proceed in the relationship with Nortel.

    While it is uncertain what these moves will mean for long-term agreements between the two companies, Nortel has to be very careful about how it treats its biggest supplier while it restructures, said Ed Snyder, principal analyst at Charter Equity Research.

    “Nortel is almost totally dependent on Flextronics,” he said. “They've got to keep Flextronics relatively happy or they don't have any product any more.”

    Nortel's options appear restricted: seeking out one or more new suppliers could violate existing agreements it has with Flextronics, or at least cause some tension. As well, it would be very costly — an issue the cash-conscious Nortel is well aware of.

    “Manufacturing product requires a pretty tight link between your engineering and pre-production groups and the actual, large-scale production,” Snyder said, adding that Nortel is “in no position financially to woo another supplier.”

    Nortel filed for protection last week, blaming the global financial crisis for derailing turnaround efforts it started in 2005.

    It has about $2.4 billion in cash on hand and analysts expect the company will try to shed assets — probably at firesale prices — in a desperate bid to survive.

    “Nortel's day-to-day operations are expected to continue without interruption,” Nortel spokesman Mohammed Nakhooda reiterated on Tuesday in response to questions about the company's relationship with Flextronics.

    “While I cannot comment on this further, our commitment to our customers and to the future of Nortel remains at the forefront of all our decisions.”

    Flextronics did not return a request for comment.

    Nortel shares were down 1 Canadian cent at 9.5 Canadian cents on the Toronto Stock Exchange. In mid-2000, they were worth more than C$1,100 each, adjusted for a stock consolidation that took place in late 2006.

    ($1=$1.27 Canadian)

    (Reporting by Wojtek Dabrowski; editing by Rob Wilson)

    http://biz.yahoo.com/rb/090120/business_us_nort…

  • Anonymous

    here it’s another interesting article:
    http://www.echannelline.com/usa/brief.cfm?item=16165

  • less

    Seattle, Washington-based F5 is offering up to $9,000 in trade-in credits on Nortel's Alteon technology, looking to capitalize on the firm's recent problems.

  • protosphere

    What would be left to offer debt holders after they lose (not liquidate) everything?

    Who would buy Nortel's business units they are already acquiring for free through attrition. Let alone in this market unable to sell them to date. Competitors are already making provisions to acquire Nortel's business right now. (see links below)

    What will be left to compete with, even if debt holders were given an huge whack of shares later, and for what, when their customer base migrates elsewhere to operate as a viable entity going forward.

    I see things turning out much worse than even Mr. Aisles indicates. I see them unable to unload much if anything and vaporizing everything they do have into thin air to a degree of overkill, as the worse case scenario unfolds deteriorating daily.

    There will not be anything left in a few months the way I see it with existing debt holders who won't float anything more from the paper Nortel prints yet again just to keep them at bay. Would this be presented in the form of an ultimatum? Like, here is a big piece of nothing?

    Where would Nortel get any money to run any operations let alone have a market to address by then.

    Here are some links already showing the trend where I anticipate a mass customer exodus right across the board making the Nortel brand increasingly redundant (credit due to a very intelligent and informative poster, “heartless_hank”, on the Yahoo MB for researching these links.)

    ________________________________________________________________________

    Others think Zafirovski is going to get a severance package, and Nortel will be broken up and sold off; one professor at McMaster University's DeGroote School of Business thinks the Nortel brand will “disappear in the next six months.”
    http://www.fiercetelecom.com/story/call-nortels…

    MegaPath Inc., the leading provider of managed IP data, voice, and security services in North America, today announced that in light of Nortel’s recent financial issues, the company is launching a migration program for Nortel Contivity customers to replace their IPsec VPN remote access solution with MegaPath’s leading Managed SSL VPN services.

    MegaPath’s migration plan offers Nortel Contivity customers with a free four-hour consultation (a $500 value) and the first 30 days of service at no cost (certain restrictions apply – call (877) 835-6322 for details. This allows Nortel customers to determine the best approach and to easily move to MegaPath’s SSL VPN service at their own pace, without incurring significant upfront costs. . .
    http://in.sys-con.com/node/814077

    CALGARY, Jan. 20 /CNW/ – Shift Networks, a leading provider of hosted VoIP business telephone solutions, announced today that their network is now compatible with certain Nortel IP telephone handsets and clients currently using these Nortel handsets can easily move their telephone services to Shift. . .

    The compatible models include the Nortel IP 8800 Series phone, the Nortel LIP 6830 phone, and the Nortel LVP 2890 Video Phone. Model numbers can be
    found by checking either the bottom or the back of the phone. Other Nortel phones and systems may also be compatible and potential clients can contact Shift Networks toll free at 1-866-770-3001 extension 1 to determine if their devices are a match.
    http://www.newswire.ca/en/releases/archive/Janu…

    The vultures are swooping in
    ====================================
    Voice Mobility International, Inc. (TSX: VMY)(OTCBB: VMII)(FRANKFURT: VMY), a Vancouver-based developer and provider of enterprise and campus unified communication solutions, today confirmed its product line as a replacement for Nortel Networks voice messaging and unified messaging products.

    The Voice Mobility Vmerge solution has built-in Nortel telephony user interface (TUI) features and integrations with legacy Nortel TDM switches and new CS1000 and CS 2100 switches utilizing SIP. The Vmerge solution can be configured with 800 ports and unlimited users. Vmerge also has additional functions like:
    http://www.stockhouse.com/News/CanadianReleases…

    Blood in the water
    ================================

    Johannesburg, 20 January 2009 ] – Enterasys Networks South Africa has announced an unprecedented 100% 'trade-in credit' offer to users of Nortel Networks' switching products should they replace them with the Enterasys equivalent.

    This limited period offer comes in the wake of news that Nortel Networks has filed voluntary petitions under Chapter 11 of the US Bankruptcy Code and had received approval from the United States Bankruptcy Court for a number of motions requesting relief from creditors. . .CEO Graham Duxbury says Nortel users are simply required to present invoices showing the purchase price of their Nortel components to their nearest accredited Duxbury Networking dealer in order to qualify for the 100% trade-in offer.
    http://www.itweb.co.za/sections/business/2009/0…

    Seattle, Washington-based F5 is offering up to $9,000 in trade-in credits on Nortel's Alteon technology, looking to capitalize on the firm's recent problems.

  • Cataractus

    Although I'm primarily a techie, not a supply chain management guy, my guess is that Flextronics is going to require much more stringent financing terms, such as allowing only a very small amount of receipts outstanding for a very short period of time, such as 30 days, or even requiring Cash On Delivery.

  • http://nortelinsider.wordpress.com/ Desk Jockey

    This is no surprise. Besides holding contempt for their employees, the Nortel executive has also repeatedly demonstrated their lack of care for shareholders as well. What more can you say about a band of thugs who only care for themselves?

  • less

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  • less

    You're all familiar with the term “tingling sensation” -

    The optics of pulling out of a major sponsorship deal like the Olympics are extremely damaging so it's unlikely Nortel could or would pull out of either Olympics, said Peter Tingling, a business professor at Simon Fraser University.

    But that doesn't mean either committee wouldn't be looking for its own way out.

    “This isn't the kind of thing that's going to reflect well on the Olympic brand,” Tingling said.

    “You can't talk about competing and winning and be talking about bankruptcy in the same sentence,” Tingling said.

    Tingling, Sensationalist.

    If you start gettin' the willies disregard them – as you would, say, baseless unproven rumors of a bankruptcy filing:

  • less

    Enterasys Networks South Africa has announced an unprecedented 100% 'trade-in credit' offer to users of Nortel Networks' switching products should they replace them with the Enterasys equivalent.
    Hmmmmmmmm……
    Enterasys Co…….. Enter-a-Cis- co

  • less

    You're all familiar with the term “tingling sensation” -

    The optics of pulling out of a major sponsorship deal like the Olympics are extremely damaging so it's unlikely Nortel could or would pull out of either Olympics, said Peter Tingling, a business professor at Simon Fraser University.

    But that doesn't mean either committee wouldn't be looking for its own way out.

    “This isn't the kind of thing that's going to reflect well on the Olympic brand,” Tingling said.

    “You can't talk about competing and winning and be talking about bankruptcy in the same sentence,” Tingling said.

    Tingling, Sensationalist.

    If you start gettin' the willies disregard them – just as you would, say, baseless, unproven rumors of an impending bankruptcy filing by the company you work for. Don't believe that, instead believe, uh….

  • less

    Enterasys Networks South Africa has announced an unprecedented 100% 'trade-in credit' offer to users of Nortel Networks' switching products should they replace them with the Enterasys equivalent.
    Hmmmmmmmm……
    Enterasys Co…….. Enter-a-Cis- co

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