Nortel CEO Mike Z: The End is Near

By Mark Evans | Published: June 21, 2009

It’s been awhile since the last Z-Mail but with the proposed sale of Nortel’s CDMA business and LTE R&D unit to Nokia for $650-million, the time must have seemed right for a presidential update.

Putting aside the deal with Nokia, the most striking part of Mike Z.’s message is Nortel is “advancing in discussions with external parties to sell our other businesses”.

Translation: The restructuring process started when Nortel filed for bankruptcy protection in January has evolved into a full-blown asset sale. As a result, there’s no chance of a New Nortel emerging. Instead, Mike Z. will be wheeling and dealing until there’s nothing left. It’s not like anyone should really be surprised that Mike Z. is gutting Nortel but that he’s publicly admitted strategic defeat.

Team Nortel:

It has been a long journey since our January 14 announcement. Nortel has been battling against a tough marketplace and the effects of our filings for creditor protection. I want to thank you for your efforts to stabilize our business, preserve our customer relationships and face the task at hand with both a sense of reality and optimism. You have driven hard and with a sense of urgency to close business and move this company forward under the harshest of circumstances. Your dedication and hard work have been inspiring.

Today, I want to share some news with you on Nortel’s and your future, to provide some clarity around our decision-making process and what lays ahead. As you know, evaluating our businesses to determine the ultimate path forward has been our most critical priority. On May 11, we said we were working to maximize the value of the company, while preserving our innovation platforms and employment to the greatest extent possible. We also said that we had been in discussions with external parties around a number of our businesses. I am pleased to announce that these discussions have progressed and that today we:

- entered into a “stalking horse” sale agreement for our CDMA business and LTE Access assets with Nokia Siemens Networks for US$650 million.
- are advancing in discussions with external parties to sell our other businesses.

I know you are eager to hear what this means for Nortel, and for you. You will be hearing first from your business leaders in greater detail at live GISs starting on Monday, then I will provide additional comments in a company-wide video before the week is over. But first, let me briefly provide some context around how we reached these decisions.

In early 2006, we set out on an ambitious path to transform this company – to significantly improve our operations and cost structure, and aggressively shift our economic center and investment bets from legacy to the high-growth segments of the market. You have made tremendous progress on many fronts – capturing our customers’ appetite for innovation with cutting-edge technologies like 40Gig/100Gig; LTE, CVAS and Unified Communications – transforming our processes and improving our product quality and customer service levels – while fixing our significant accounting and legal issues. Our strategic intent was to drive industry consolidation through organic growth and acquisitions. While we made considerable progress, we could not achieve the financial leverage required to lead this effort, especially with the economic downturn and credit crisis.

Let me be clear. Together, you have created real value for this company, and today’s news and the ongoing and tangible interest in our businesses and intellectual property by other parties are solid proof points. Our priority going forward will be to leverage that interest to maximize the value you have worked so hard to create. Around that, my focus continues to be to do everything we can to ensure our customers continue to benefit from Nortel innovation and that as many employees as possible have the best chance to move with our businesses as they potentially move into other companies.

Technorati Tags: mike zafirovski, nokia-siemens, nortel

Best Path Forward for Wireless

As we evaluated our businesses it became clear that a sale is the best path forward for our Wireless business. This decision allows this business to preserve the significant value inherent in its know-how and leading-edge technologies and solutions, particularly if it is consolidated in companies that can bring greater scale to the marketplace.

You have built this business into a strong player in the market and a valued asset in the industry. Nortel is the second largest supplier of CDMA infrastructure in the world – we do business with three of the five top CDMA operators globally, including Verizon Wireless, which operates the largest wireless voice and data network in the United States. With strong customer relationships globally, you have driven differentiation and competitive advantage through deep innovation in the wireless space.

At the same time, the leading innovation and capabilities of our 4G innovations have been driving our world toward true mobile broadband. Our LTE capabilities have been well-received by key global carriers and are very complementary to the LTE efforts of Nokia Siemens. The inclusion of certain of our LTE Access assets means that Nortel-grown innovation will remain at the forefront of the next wave of wireless networks. We should all be proud of the many Nortel employees who have contributed so much to move 4G forward—their legacy is an important one.

“Stalking Horse” Process

It is also extremely important to understand the processes around the wireless sale agreements. In the U.S., this sale requires a court-approved bidding process, known as a “stalking horse” or 363 Sale under Chapter 11 of the U.S. Bankruptcy Code. Consummation of the “stalking horse” transaction is subject to higher or otherwise better offers.

This “stalking horse” process is controlled and prescribed through the courts and we must ensure it is a fair and open one. You will see very limited discussion around what a combined business would look like as we cannot favor the “stalking horse” purchaser over another potential bidder. There will be no business or portfolio integration taking place until the process has been completed and definitive purchase agreements are in place. During this time, employees must remember that they should continue their ongoing duty to act in the best interest of Nortel and not any potential purchaser.

In addition to the auction process and Ontario Superior Court and U.S. Bankruptcy Court approvals, the agreements are subject to other customary approvals, including government approvals such as in Canada and the U.S.

Advanced discussions to sell our other businesses

Since the beginning of the filing process, our focus has been on preserving the value of our businesses – our technology, customer relationships and the know-how of our people – in the face of a contracting and consolidating global market. We had every intention of leading that consolidation, as it is clear that there will be fewer players in our industry in the future. It is clear now that Nortel will not be one of them in our current form. But, to maximize the value of our businesses, we will leverage the opportunity that consolidation presents.

There are important implications that flow from this decision that we must be very transparent about. If we are successful in selling our other businesses, Nortel will not emerge from the process that began with our filings for creditor protection. Nortel will apply to delist its common shares and the NNL preferred shares from trading on the Toronto Stock Exchange. We do not expect that the Company’s common shareholders or the NNL preferred shareholders will receive any value from the creditor protection proceedings, and we expect that those proceedings will ultimately result in the cancellation of these equity interests. If we are not successful in finding buyers, then we will evaluate other alternatives for those businesses at that time.

We have continually sought a solution that would allow us to emerge from the process and continue writing the history of this storied company. We have looked at every possible alternative, but we believe that this is the best path to provide clarity to our customers and employees, preserve the innovation that is the Nortel heritage and maximize value for all creditors, including Nortel employees and pensioners. For some this will mean a potential path forward in a new home. For others, it will mean an end to the uncertainty and a need to move on to new opportunities. I am confident that this is the truly the best outcome.

The Road Ahead

We still have much work ahead of us. Continuing to stabilize our customer base, even as our businesses possibly become part of other companies, is key to achieving the best return on these assets. Working to preserve that value is important to all of us and other stakeholders.

One of our top priorities will be doing everything we can to ensure successful integration with the acquirers of our businesses. Capturing the full value of Nortel’s strengths will be their objective, and we must do everything in our power to see that happens. I am deeply committed to achieving that goal in the coming months.

I want to assure you, as we move forward, we will make every effort to be transparent around the sale of any of our businesses and the timeframe for filing our final plan with the courts. There will be many questions you will have and we will try and answer them to the best of our ability.

I want to again thank you for your hard work and dedication over the last few months – and for so many of you – years at Nortel. There’s no question, the know-how and innovation that began at Nortel will continue to influence and lead our industry as our businesses and many of our people find new homes under new banners. The new players created will have every opportunity to succeed precisely because they are standing on your shoulders.

Thank you for all you are doing for Nortel,

Mike

This entry was posted in Executive Suite, Financials. Bookmark the permalink. Post a comment or leave a trackback: Trackback URL.

henrylow

There's a movement to radically change California government, by getting rid of career politicians and chopping their salaries in half. A group known as Citizens for California Reform wants to make the California legislature a part time time job, just like it was until 1966.

latest trend
yes4aapl

the time must have seemed right for a presidential update.

Putting aside the deal with Nokia, the most striking part of Mike Z.’s message is Nortel is “advancing in discussions with external parties to sell our other businesses”.

Translation: The restructuring process started when Nortel filed for bankruptcy protection in January has evolved into a full-blown asset sale. As a result, there’s no chance of a New Nortel emerging
---
re
a presidential update.?
Don't be ironic, Mark.
Most media outlets say Mike Z gave up restructuring of Nortel.
Is it true?
I knew that he was the last one /3-5 year Plan/ destroying Nortel so how he would be the savior under BK protection restructuring?
nope
Mike Z has no idea how to save Nortel.
but
the deal with Nokia is a good move
the price tag of $650 mill for wireless sets the new bidding war /I hope/
What about veterans now? Save Nortel, group...
They are challenged with the new reality. Their hope for $1 bill is gone, I guess. Wireless plus enterprise now is more than $1 bill sold piece by piece...
question to Save Nortel group
Are you still in the game?
zeroman

Z, Hack and others are absolutely pissed off with the events of him being pulled in front of parliament. apparently they are now in a revengeful state to sell everything for bargain basement prices to spite the government.
zeroman

written by his executive assistant
dljvjbsl

I worked at BNR in the 70s. In those days, we had the feeling that we were part of something new and significant. Nortel had its problems. It almost went under in the id-70s with transition from SP1 to DMS. No customer wanted to be the last one to buy SP1 and so sales dried up when word of DMS leaked out. However this was an issue with the success of two great products (SP1 and DMS) and not an expression of a badly managed company as its happening today.

This is a very sad occurrence. It is another Avro Arrow for Canadian technology. We had the chance to do something great and lacked the ability and confidence to follow through
Guest

What do you expect from a product of Titos Yugoslavia? The guy had visions of himself as AlexTheGreat on Bukefalos cutting the Gordian knot, in the end he just turned out to be a cheap immitation like those Rolexes they sell outside his COE in China.

The ultimate tragedy here is that Canada has lost a technology powerhouse while Zudas laughs all the way to the bank.
broadbandbill

I agree on his Alex the Great vision; warned him about the same over 3 years ago. Reminded him that AtG didn’t listen to his smart advisors either.

However, Tito NEVER suggested that his disciples sell their souls for a buck; Z learned that art form from Jack (the-blue-eyed-Devil himself) Welch…--bb
Guest

Ladies and gentlemen, uh, we've just lost the picture, but what we've seen speaks for itself. Nortel has apparently been taken over, 'conquered' if you will, by a master race. It's difficult to tell from this vantage point whether they will consume the captive Nortelians or merely enslave them. One thing is for certain: there is no stopping them; they will soon be here. And I, for one, welcome our new overlords. I'd like to remind them as a trusted manager , I can be helpful in rounding up others to toil in their underground cubicles.
IdontBELIEVE

This may or may not surprise you... but Z has lied to all again!
(or possibly he does not understand the bankruptcy process in Canada, which should scare us even more... although not surprise us!)

There definitely are SECURED, UNSECURED, PREFERRED and DEFERRED creditors under Canadian Law, check with any Lawfirm or Lawyer.

Section.2 of the Bankruptcy Insolvency Act (BIA) http://laws.justice.gc.ca/en/notice/index.html?... defines a "creditor" as a person having a claim,

1 - Unsecured, preferred by virtue of priority under s.136 of the BIA
2 - Secured, that can be proved as a claims under s.124 of the Act.

The creditors may be divided into four categories, and you can bet your a$$ that government is first in line along with prefered bondholders and shareholders. (like Z and his cabinet)

the condensed version is available on Wikipedia; http://en.wikipedia.org/wiki/Bankruptcy_in_Cana...

Z's lack of knowledge and experience in managing a company going through bankruptcy has constantly led to significant negative impacts again and again... And it not over yet, he will prove his worthlessness once before this is all done!

But what can we expect from someone who made over $10M last year, yet still says he has no funds for his sons tuition...
ChaiTea

http://www.theglobeandmail.com/globe-investor/n...

>In return, the Finland-based equipment company has promised to keep at least 2,500 Nortel employees, most of whom are based in Canada and the United States.

How is this possible?

Majority of CDMA and LTE has been offshored by our crappy executives like Noy and Graham Richardson (for CDMA) , and Larry Murat (for LTE). In CDMA BSC 80% is offshored, OAM 80+% is offshored, BTS is 90% plus offshored, MTX is around 50% offshored. Product Verification teams are mostly outsourced, GPS was forced to offshore a big part of their team.

Where the heck are the majority of the 2500 jobs in CDMA & LTE that are suppossedly based in USA & Canada, for which EDC provided the 300 M$ funding?

Mike Z and his cronies have duped every one so far, and I wonder if they are duping EDC as well?
LTE_Engineer

Most of LTE development is in Ottawa.

The Beijing teams working on LTE hardware no longer exist. I'm not sure about LTE software teams in GDNT.
protosphere

"precisely because they are standing on your shoulders"

oh no, yet another punch line...

precisely? he's kidding...right?
NortelEmp

Interesting use of the metaphor "standing on the shoulders of giants".

(http://en.wikipedia.org/wiki/Standing_on_the_sh...)

Ridiculous use of the word "precisely".

This zmail has a different writing style than the last few. Looks to me like Mike has a different speech writer - someone who likes to use lots of adjectives and is not afraid of long sentences. Maybe Ron was Mike's speech writer and now that he's gone, someone else had to step in.

Whoever is writing them must have to close their eyes and pretend they are in never never land, just so they can accept the fantasy they are spinning.

I certainly would not be a proud employee if I was the one to write these.
InTheRoundEye

There's NO better feeling than "I told you so"....

"Perhaps even more painful for Zafirovski was the role played by Susan Spradley, the head of Nokia Siemens' operations in North America, and a former senior Nortel executive. Shortly after Zafirovski was hired as Nortel's CEO, Spradley reportedly told her new boss that his game plan -- which involved trying to restore Nortel to its former greatness rather than narrow its focus -- was bound to end in ruin."

And so it did.
broadbandbill

Nothing to take away from Ms. Spardley (a very capable exec, I hear) there were several top industry analysts and then-Nortel sympathizers practically begged him, myself
included. Not only did he NOT listen, he actually thought we were all punks with very limited capabilities whose advices are not close to being qualified.

My most often and frequent advice to him was to “think small” and here he is, doing small. Poetic justice just caught up with the boy…--bb
whatnext4nt

Except for some inter-company loans, there are no secured creditors; this was confirmed by Mike Z and the Nortel Lawyer in the Canadian Parliamentary committee discussions. If you look into the CCAA and Chapter 11 documents, you will also find this to be the case. Some members of the committee are planning to propose amendments to Canadian bankruptcy laws to make severed employees and pensioners highest priority creditors.
Blogger4life

Nice to hear that the "new players" are now "standing on our shoulders". Perhaps they can balance themselves well enough to pull the knife out of the back of Nortel employees.
fatzoff

To Mr Z

Happy Father's Day

You have ruined so many fathers and childrens futures over the last few years. All those scholarship funds that have simply evaporated because of your lies. We are so happy daddy Z that you are able to send us to such preppy schools, and the hell with all of them. If the Z boys don't look after themselves, who will?

From your sons Matt, Kirk and Todd
InTheRoundEye

No kidding.

My son has gone from a fully paid four years at Yale, to now IF he's lucky I might be able to send him two a welding school at a community college.

- ITRE
zeroman

send him to welding school. you were probably part of the decision to offshore everything at nortel, like most other executivs at other companies. there is nothing much left for him to do here. or get him to learn mandarin or indian.
The psychiatrist

"My son has gone from a fully paid four years at Yale,"

wow you guys were on the gravy train before Mike got his sticky little hands on Nortel.
exnt_x_2

Nice point.

And too true.
protosphere

...and even more

http://www.theglobeandmail.com/globe-investor/n...

The federal government could have prevented the liquidation of Nortel Networks Corp. (NT-T0.18----%) with a massive bailout, but instead Ottawa has decided that the best way to salvage something from the biggest corporate bust in Canadian history is to help fund a foreign breakup.

Through the Export Development Corp. (EDC), which normally helps Canadian exporters and investors expand their businesses abroad, the government will provide $300-million toward a credit facility for Nokia Siemens Networks' $650-million (U.S.) bid for Nortel's wireless assets.

In return, the Finland-based equipment company has promised to keep at least 2,500 Nortel employees, most of whom are based in Canada and the United States.

“Part of the commitment was that we would ensure that we kept jobs in Canada,” said Sue Spradley, head of North American operations for Nokia Siemens.

The unusual turn of events highlights the lack of confidence Ottawa has in Nortel's leadership to turn around the company after it entered creditor protection Jan. 14. The EDC, for example, was only willing to provide $30-million (Canadian) of support to Nortel until July 30. And despite numerous meetings between Nortel's senior management and members of cabinet, the government proved unwilling to back restructuring efforts.

The decision acknowledges a new reality in the telecommunications landscape, where larger and better-run players have risen to dominance and will increasingly decide how much research and development gets done by Canadian engineers and scientists.

China's Huawei Technologies Co. Ltd., for instance, is planning to bring several hundred R&D jobs to the Ottawa area in the next few years. The company has more than tripled revenues since 2005, to $18.3-billion last year, by combining cheap prices with reliable technology. It says it employs more than 80,000.

Nokia Siemens, meanwhile, has also been adding R&D staff to Canada in recent months. The company was created in 2007 as two tech giants (Nokia Corp. and Siemens AG) decided they needed greater global reach to compete in the field. The company employs about 60,000, and with offices around the world is able to focus on R&D around the clock, says Ms. Spradley, who served as president of global services and operations at Nortel before joining Nokia Siemens in 2007.

Huawei and Nokia Siemens won an approximately $1-billion wireless contract in Canada last October, securing the contract to upgrade BCE Inc.'s Bell Mobility and Telus Corp. to a new, jointly-owned wireless network.

Canadian policy makers are being forced to play a weak hand to ensure some Nortel jobs remain in Canada. But the situation leaves the long-term strength of the nation's technology sector unclear.

Besides being the greatest spender by far on R&D in Canada ($1.8-billion to Research In Motion Ltd.'s $254-million in 2007, for example), Nortel has also spawned at least 260 technology startups over the years, and played a crucial role in funding research partnerships with universities that have helped turn pure research into industrial research.

“Other high tech leaders have not been very good at supporting university research,” said, Richard Van Loon, the former president and vice-chancellor of Carleton University. “Nortel has been a big funder, but a broken up Nortel isn't going to be able to do that.”

Mr. Van Loon fears that without Nortel's commitment to universities, Canada will fall to the bottom of the rankings for industrial R&D within the Organization for Economic Co-operation and Development.

Michael Urlocker, an analyst with GMP Securities L.P., forecast last October that Nortel would have to sell all its assets because there was no path to sustained profits. He said Friday's news will be hard on individual stakeholders, but not necessarily the country.

“If the R&D is not relevant to customers, or ultimately produces products that can't generate sufficient profits to sustain the company, which was the case for Nortel, in my opinion, as tough as it is to say, it is not a significant loss to the nation,” he said.

“My sense was that the probability of success of Nortel achieving an operational turnaround was near zero and therefore selling assets immediately was the best option. Clearly, management overestimated their options and considered that they could turn it around.”

Nokia Siemens, in fact, had been talking to Nortel executives as far back as last September, when Nortel chief executive officer Mike Zafirovski announced the company wanted to sell another of its divisions, called the metro Ethernet networks unit.

Ms. Spradley said Nortel's wireless assets offer a natural way for her company to expand its market presence in North America, but she wanted to wait for the bankruptcy filing before bidding.

“We wanted to see where Nortel was going, and what they wanted to do with their customers. It was nothing negative. It's just the way it needed to run,” she said.

Nortel has made clear that its wireless assets represent the first phase of liquidation, reporting Friday night that discussions are moving forward to sell the remaining pieces of the company. Reports put the value of liquidation of all of Nortel's assets at less than $2-billion. Yesterday, Ms. Spradley would not rule out her company's interest in some of those assets.

Nortel has been in talks to sell its enterprise unit valued at less than $500-million to two potential suitors, according to The Wall Street Journal. They are Avaya Inc., owned by the private-equity firms Silver Lake Partners and TPG Capital, and by Siemens Enterprise Communications, which is majority-owned by private-equity firm Gores Group LLC in a joint venture with Siemens.

As lawyers and bureaucrats put the final touches on the wireless agreement last Thursday, the House of Commons standing committee on finance had ordered Nortel chief executive officer Mike Zafirovski back to Ottawa to answer for his decision to cancel severance pay, cut pension payouts and award $45-million of bonuses to remaining employees.

This morning, Nortel shares will be suspended before the opening of the Toronto Stock Exchange, where they have traded since 1973 when the company went public. Nortel said it will apply to delist the shares.
NortelEmp

My heart sunk on Friday, when I read about all of this. After almost two decades at Nortel, this news was so disheartening. Although I figured Nortel's demise would occur in August, I never expected to care so much.

My biggest concern now are the pensioners and those recently severed who are at an age where gainful employment is near impossible. I'm not in that boat, but I have colleagues from Nortel who are. I never realized how this would affect them.

For those who care about the people who work and worked at Nortel, I hope we can find a way to help those who will need it.
painful_truth

Mark Evans,

In a short time from now, you will need to change the blog from "All About Nortel" to "All About Nothing"
painful_truth

Sue Spradley outwitted the incoming Six Sigma Keystone GE Cops. But then again, that was easy pickings.....

From $850M to $650M for waiting 2 months made the simpleton boys sweat and finally give in. BOD paid Z-Hack-Agan to lose control of the company, and then paid them for 2 more months to lose another $200M. Great display of leadership!
broadbandbill

Let’s not forget that if the GEngsters were smart enough to divest Nortel of its wireless portfolio (CDMA + LTE) even 2 years ago when Nortel’s LTE had a clear head start w/Verizon, Nortel would have pocketed over $2B for its wireless unit and would have had the much simpler task of focusing on synergistic Enterprise/MEN units. Thus, it’s not correct to state $850M down to $650M but rather, $2B down to $650M, while ‘world classers’ pocketed over $100M in combined compensation during this time. A-fricking mazing…--bb
The psychiatrist

pocketed over $100M in combined compensation during this time. A-fricking mazing…

So bb how is it that Z and his team were able to convince the judge overseeing the bankruptcy process that setting aside $43 million in "retension bonuses" were absolutely necessary in order to keep those so called "key employees" from fleeing when collectively it was them who caused Nortel to settle for $650 m instead of the potential $2b they could have gotten by way of their stupidity,not to mention that now because of the fact that many of Nortel's creditors wil be getting pennies on the dollar.

I'm not mistaken doesn't a special request as in this $43m they wanted for retension bonuses have to be presented in front of Nortel's current creditors,especially the so called secure ones?

If that is the case then we must all give Mike and the BOD credit for pulling this one off especially now that these so called key employees will no longer be seen as key once the rest of Nortel's businesses are sold off.
broadbandbill

These guys are very experienced thieves, they found yet another way. I would like to remind everyone that is exactly what 'One Happily Retired Cisco Exec' posted on this blog a while back regarding Z and his style...--bb
ariador

Would it be possible for you to give the link? It sounds like a really interesting take on you-know-who
ExNtrl

At least look on the bright side. At least the wireless group will get good quality leadership when Nokia Siemens takes over and get rid of the current Nortel executive team and BOD.
painful_truth

Amen to that! For future reference the word "executive" is too strong an application for the work they have exhibited. Just call them "Z-Hack-agan"
ExNtrl

Sorry for the slip :D I was feeling generous.
sick_sigma

New article from the ottawa citizen. This story makes Zafirovski and his execs look even more like keystone cops than they already do(if that is even possible).

A couple of months ago Nokia Siemens was willing to pay $850 million for the division they just bought for $650 million. Good thing we drug this out longer. Think about that for a second. We lost $200 million in opportunity cost and we also paid $43 million in KEIP/KERP bonuses to "preserve the value of the company."

Why couldn't we have just sold to NSN two months ago and scratched the KEIP/KERP plans? We would have been almost $250 million better off!!!

http://www.ottawacitizen.com/Business/Nortel+ra...

Nortel races to sell everything before values plummet further

By James Bagnall
The Ottawa CitizenJune 21, 2009

So this is the beginning of the end for Nortel Networks. A 114 year-old dynasty that slipped into bankruptcy protection five months ago and will now be sold off, piece by piece.

Nine years ago, Nortel was worth $366 billion on the Toronto Stock Exchange, making it by far the country's most valuable company. It was a global phenomenon. Nortel employed 95,000, ran R&D labs in three-dozen locations around the globe, and promoted an inspiring international brand that reminded everyone Canada was a high-tech powerhouse.

Late Friday, Nokia Siemens Networks -- a two-year old Finnish-German consortium -- said it would pay a bargain basement $650 million U.S. for the two most valuable pieces of Nortel's wireless technology unit. About 2,500 employees will join their new owners -- assuming the deal clears a number of regulatory hurdles. Nortel employs an estimated 27,000 globally, including roughly 3,500 in Ottawa. Perhaps 500 or so of the latter will join Nokia Siemens.

Nortel CEO Mike Zafirovski made it clear he is intending to sell the rest of his company's main units as soon as possible. These include: Enterprise (phone systems for business), Carrier Voice (Internet calls), Optical technology, a joint venture with LG of South Korea and the remaining bits of the wireless unit (Nokia Siemens is buying CDMA and LTE technologies). If no reasonable offers come through, Zafirovski will either restructure them as standalone businesses, or liquidate them.

Assuming the various units are actually sold, Nortel could generate proceeds of $2-billion-U.S.-plus, including the Nokia Siemens deal. This isn't nearly enough to cover all money owing because the company's liabilities as of March 31 exceeded its assets by $3.6 billion U.S. Unsecured creditors -- including pensioners, suppliers and employees owed severance pay -- will have to accept only a portion of the money owed to them.

Unfortunately, there are no guarantees that more buyers will actually emerge or that Nortel will get $2 billion U.S. Most of Nortel's product lines are no longer world beaters. Zafirovski and his team of negotiators have also been hugely frustrated by the complexity of the process, some of it self-inflicted. Although there are only two or three legitimate potential buyers for each of Nortel's business units, soliciting bids has been difficult. And the longer things go on, the worse it gets for Nortel.

Part of the delay has to do with the legacy of three dozen different accounting systems and the intermingling of business units. Many of Nortel's R&D employees do work for multiple businesses. This makes it difficult to figure out the overhead expenses that apply to the various units. A further complication emerged early this year as Nortel eliminated its $2-billion-U.S.-a-year global services unit and assigned the revenues to the various product lines. Bidders were confused about how the revenues were allocated and how they compared with 2008 results.

A second factor that made it difficult for Nortel to unload its businesses quickly had to do with the bankruptcy filing. As soon as Nortel entered creditor protection, many of its customers stopped placing orders. During the first quarter, year-over-year sales fell 37 per cent. The Enterprise unit, which Nortel wanted to sell first, saw its product revenues slump nearly 50 per cent compared to the same period in 2008.

Nortel thought it had a deal in late April to sell its Enterprise business to Silver Lake (which owns Nortel competitor Avaya) and other private equity companies. However, the consortium backed off at the last minute, apparently out of concern that revenues in Nortel's Enterprise unit weren't stable. If Silver Lake waits, it might be able to acquire the business for even less.

Nortel is nearly powerless to counter such tactics. As long as it remains in bankruptcy court, its customers will be seeking alternative suppliers. Indeed, Nortel is losing big where it counts.

In the telecommunications equipment business, the most important sales involve next-generation networks. Once a phone company such as Bell Canada or Verizon in the U.S. selects a group of suppliers, the latter are virtually assured hundreds of millions of dollars of follow-on business over the multi-year life of the network.

Nortel has been losing these landmark contests -- including ones in which its technology was ranked highly. Consider the case of Verizon Wireless, which in February awarded its next-generation LTE wireless technology contract to Ericsson of Sweden and Alcatel-Lucent, a French-U.S. corporation. Nortel should have been a shoo-in. Its LTE technology was first-rate and it was a long-time supplier of CDMA gear to Verizon Wireless. But the wireless carrier rejected Nortel's bid out of concern for risk -- Nortel might not be around in a year or two to service the contract.

It's a good bet that Verizon Wireless encouraged Nokia Siemens to buy Nortel's CDMA and LTE businesses. This would give the carrier some assurance its already-installed Nortel gear will be looked after. The arrangement also gives Nokia Siemens an entrée to the U.S., a market it has had trouble breaking into.

Indeed, that's why the Finnish-German group is willing to pay as much as it is for the Nortel assets. But, even here, Nortel paid a penalty for delaying. A couple of months ago, Nokia-Siemens was prepared to pay $850 million. By June, Zafirovski -- not to mention the committee of creditors that now controls Nortel's destiny -- was getting desperate to generate a sale. The price came down.

Perhaps even more painful for Zafirovski was the role played by Susan Spradley, the head of Nokia Siemens' operations in North America, and a former senior Nortel executive. Shortly after Zafirovski was hired as Nortel's CEO, Spradley reportedly told her new boss that his game plan -- which involved trying to restore Nortel to its former greatness rather than narrow its focus -- was bound to end in ruin.

She was right. Her new firm is now taking advantage.
protosphere

"If no reasonable offers come through, Zafirovski will either restructure them as standalone businesses, or liquidate them.

Unfortunately, there are no guarantees that more buyers will actually emerge
soliciting bids has been difficult. And the longer things go on, the worse it gets

it difficult to figure out the overhead expenses that apply to the various units
Bidders were confused about how the revenues were allocated and how they compared with 2008 results.

As long as it remains in bankruptcy court, its customers will be seeking alternative suppliers. Indeed, Nortel is losing big where it counts."

_________________________________________________

"restructure them as standalone businesses, or liquidate them."?
restructure? tell me it isn't so! liquidate! liquidate! torch it followed by an exorcism! =)

If this is what Spradley told Zafirovski, I wonder what the Gary's told Owens?
painful_truth

Its not over. The $650M is the first bid...more to shake out as others may start to bid now that the first bid was accepted......
TongueInCheek

Wasn't it also stated that the original $850 Million included other parts of Nortel business that isn't part of this $650 Million bid? My guess is that the original bid also included the Carrier Voice unit and that Nortel thinks they can get more for that unit in a stand-alone deal rather than packaged with CDMA & LTE.
protosphere

So much for your "when they restructure" speculating TongeInCheeks.

No more of your "guesses"...please.
less

"Nortel thinks". Yeah, Nortel has the industry right where it wants it to be
Still_waiting

Damn, go away on vacation and the whole company falls apart. LOL
throw_out_the_bums

For all of us former NT employees, it would be interesting to see which companies, either competitors, suppliers or customers, we land in the next few months.

If you have settled into a new position, how about posting where you landed?

Regardless, best of luck to all Nortel employees, past or present.
painful_truth

I can't reveal that because I don't wish all past/present Nortel employees "best of luck". Some of the leaders below Z, Hackman and Flan-again protected their behinds and didn't stand up for the resources who made the company great.

I already wished them "best of luck" and its working......
painful_truth

One analysis at a time......

Z states the following:
As we evaluated our businesses it became clear that a sale is the best path forward for our Wireless business. This decision allows this business to preserve the significant value inherent in its know-how and leading-edge technologies and solutions, particularly if it is consolidated in companies that can bring greater scale to the marketplace.

Anyone with a decent quality MBA or Business Degree can pick out "greater scale" as admitting the following.

We missed the boat on differentiating our product offering and our competitors kicked our ass with a scale cost strategy that has been around since Henry Ford realized it with the Model T. We had no choice but to give up our business a century later because we didn't learn that old lesson.
painful_truth

In Joel Hackney's personal web site http://joelhackney.com/

He states the following about this book.

Good to Great by Jim Collins - While the book offers no silver bullets for success, it does lay out a great road map for companies to improve their execution based on an exhaustive research process.

Folks if anyone has read the book, you will find that the major point of the book is not what he claims. The book makes a point of the type of CEO and leaders it takes to lead a level of significant success. In fact it clearly calls out for level 5 leadership and what the study found is that without level 5 leadership, the companies and board of directors hire people like Hackney who are not the types required.

The CEO's of these great companies are typically very shy, reserved, but show a passion for people and resolve. Interesting Hackney states the book offers "no silver bullets" Hello ----that is the point of the book!

Hello---Six Sigma is not a silver bullet, but "leaders" of his cloth believe it is.

For those who dare to become great, read the book!!
CrazyCanuk

My wife read this latest Zed-Mail. When she got to the comment about "The new players created will have every opportunity to succeed precisely because they are standing on your shoulders." her only comment was that she didn't find that to be a very comforting image.

"It's bad enough that you're up to your chin in quicksand, but now you've got some clown standing on your shoulders?"
painful_truth

In a meeting ~2 years ago, Hackney made a claim that when Jack Welch had taken over GE, it had a market cap of about $12B and he took it to $500B. He then went on to capitalize on Welch's success and say that thier vision of Nortel was the same. Interesting how analogies get stated with no plan or real vision on how to accomplish the stated objective. The question was how and he went on to say with Enterprise leading the way. Okie Dokie......

Two years later we can see he was not lying: If you add up Nokia Siemens, Alcatel, Ericsson, Avaya, & Gores etc, their combined market cap is about $500B. He just failed to realize that competition will eat your lunch without a plan or leadership qualities.

Now we know it was to break it up into pieces and serve them up to the market leveraging Six Sigma so as to do it in an efficient manner as possible. The guy is brilliant!
Scottyy

guys weren't we working to make a new startup for Nortel? Or did we work to make nortel being sold with a higher price?
cwlh

"...around our decision-making process and what lays ahead."

Clearly the failure of the company has not improved the English of Mr Z's script writers. Presumably the company can only afford cheap script writers now who are unable to distinguish between things the "lie" and
"lay" ahead. Although, I suppose that Mike Z already having laid a few bad eggs, this may actually be prescient.
sick_sigma

I am curious about what mike Z will be doing in a few months. If you look at the other execs under him who left Nortel several of them had to go to other industries(Dietmar Wendt, Clifford Holtz, etc.)

Any ideas? No snide remarks please.
reasonreality

Dietmar went to the Gores group and is now teamed with Roese and company at an ICT consultancy... How is that a different industry? It is exactly the same....
sick_sigma

Dietmar does list ICT on his linked in page.
He does not list gores group.

http://www.linkedin.com/pub/dietmar-wendt/7/608...

And seriously...... do you consider ICT to be a legitimate part of the industry? I do not. Bunch of ex Nortel castoffs who could not get jobs anywhere else.
gone2moro

It would be nice if he were battling criminal court like Frank D. but he hasn't done anything illegal as far as I know...immoral yes.

There are a few top level executives who specialize in corporate restructuring and mergers/acquistions. They are not dependant on industry.

If Mike is judged successful by his peers, our opinion does not matter, and the banks were happy it's likely that another large company will pick him up to do a similar job... which has/had nothing to do with telecommunications.
broadbandbill

He should go back to Macedonia and stay there until he finds his soul. He had one when he left, lost it along the way to 'a better life'. Get back to basics and what's truly important...--bb
GoProto

Unfortunately.. it seems that once they get a taste of the blood money made off of others sufferings .. their souls wander aimlessly for eternity.. not so much lost, but discarded in the need to fill the hunger and ambition for that "better life"..
gone2moro

"Together, you have created real value for this company, and today’s news and the ongoing and tangible interest in our businesses and intellectual property by other parties are solid proof points"

and in return we get nothing.......
exnt_x_2

...the ongoing and tangible interest in our businesses and intellectual property by other parties are solid proof points"

and in return we get nothing.......

Uhm, that's what patent royalties are for. Or did you just sign complete ownership of yours over to Nortel?

If you did, that was your choice.
XPM_guy

As part of the intellectual property agreement all designers must sign as a condition of employment, all patents based on work done while in the employ of the company belong to the company. This is standard practice, otherwise the companies underlying technology would be at the mercy of individual designers, who could walk and demand royalties at any moment. No tech company is going to allow that! To grab that golden ring, the work must be done independent of a parent company...
sleepingbeauty

I have a question, once Nortel gets this money, where does it go. Does it go to Nortel Canada, or Nortel US, or Nortel UK. And how does it fan out from there?
SomewunElse

I suspect it will be held in escrow pending the financial-restructuring portion of the overall court approved restructuring plan. The money simply replaces the asset in the overall estate, and the creditors will decide (along with the court, the Board, etc.) on how it gets divided once the dust starts to settle.
I don't think it's available for the company to spend, so has no impact either way on severance, pensions, or the like - just gets pooled with other assets.
reasonreality

proceeds from any sale should be divided across the 5 R&D centres incldued in the RPS (Residula Profit SHaring) scheme which allocates money proporationately based on R&D $$$ contribution (I think). As far as I am aware, NNL, NNI, NN UK, NNSA and one other are the big 5 and should divide it. So, in theory, the creditors in those 5 stat entities should divide the winnings. Depending on employee priority (ie in Candaa and France, I beleive, they get higher prioriuty), employees may get somethiung....
protosphere

Money goes to the new lawyers (who are not the ones listed under existing creditors) and the new increased lawsuit insurance premiums as NEW priorities in who gets paid first now.

Just like they circumvented creditors with bonuses approvals when these creditors wanted to see a plan first.

Even how they dish money circumventing severances stinks into bitter end as fraud trials loom.

After endless astounding events, what is next? No more questions please, we are gone thank you.=)
CommonCents

Great question, does this increase the chance of receiving severance? if but a fraction? If, like the guy said, all creditors are equal, is this a possibility?
gone2moro

not a great question.. pretty niave question. Forget anything you've heard about the "all creditors are equal crap". In the United State all proceeds from the sale of an asset in a chpt 11 proceeding will be paid to the secured creditors in a manner deemed fair by the overseeing judge. IF and on IF there were monies left over it would make it's way down to the unsecured creditors... severance.. pensions...etc. NT is in hock $12B.... $4B alone to Mellon Bank.... there will be NO SOUP FOR YOU!!!!
razzy1

This topic of secured creditors keeps coming up, but who exactly are these secured creditors?

Mellon is part of the official committee of unsecured creditors.

In his testimony last week Mike Z also said there was no secured creditors.
sleepingbeauty

As I understand it, Nortel in the US is a secured creditor for Nortel in Canada.
XPM_guy

The lawyers, of all stripes, get their cut off the top. Also, contracts entered into since filing get honored first (e.g. contractors, or the $200mil loan Nortel US made to Nortel Canada to fund operations there). Then, last, come the unsecured creditors, who get equal pennies on the dollar, based on what's owed them. This includes severance owed and even Bill Owen's remaining $2mil of retirement bonus. Given the rock-bottom prices Z is getting (what a salesman!), it will turn out to be very few pennies indeed - perhaps not even enough to cover postage...
sleepingbeauty

I was just wondering which arm of the company sold the division. If Nortel Canada made the sale then the money filters into that company. Then Nortel Canada employees would be in a little better position than Nortel elsewhere employees. I am not saying that we will get much if anything, but it is really important which arm of the company the sale is made by.
protosphere

Ya, $650M and what they get for the remaining business will be a drop in the bucket to what they owe.

Growing interest /creditors, etc., they circumvent with other increasing payable priorities, etc...I also anticipate more lawsuits as a given, (hence the increasing lawsuit insurance announced when even this board ironically traded losing options for cash yet again into the close)

Not much if anything will be left for anyone except those getting bonuses of course, this money is in the bank.

The poetic justice lies in that no more bone us. The cash cow has run dry and corpse sold to the highest bidder.

"Thankfully gone" is reward enough by these pay happy ultimatum thugs taking hostages all along refusing to negotiate pay practices. Let these green juniors enjoy their spoils of cash and run into the cornfield after risking careers.
CommonCents

I take it you are in the US then? The woman who testified in the HOC stated the same case, which was refuted by the CEO. Pensions ARE secure, as they are separately entities. As far as any additional funding that may go into them, that will probably decline.

The "naive" question was WHERE will the money be disbursed, as money WILL be coming in...do you have an answer for that?

The only thing I care about is hoping two things happen:

1. I can get payments from my pension (5 months after severance runs out)

2. I get something as a creditor.

I really don't have a concern about anything else that has to do with this company. I work for a former competitor now, and other than my listed concerns, thats it.
MindFunk

This final one is so funny coming from this Mickey:
"The new players created will have every opportunity to succeed precisely because they are standing on your shoulders."

Isn't he standing on NT employees' shoulders for 3.5 years ?
And getting extraordinary shameful money for this miserable achievement of his.
Whilst many of these employees get sacked with nothing in hand.

What would happen if "Atlas shrugged", just wonder ?
broadbandbill

All,

Wanted to share a terrific saying by a true and great Macedonian - my father (a decorated WWII veteran, an officer and a gentleman): “Son, leadership is not something you seek, leadership is something that finds you and knows when you are ready to receive the responsibilities that come with it.”

What did your father teach you Mr. Z?...--bb
ChaiTea

I think this is what Mike Z learnt:

1. When in a tough spot start an "I believe" Campaign
2. Best parts of a book are Chapters 11 and 7
3. Listen to "Karma Chameleon" by Boy George. Especially the part "I'm a man without conviction .... I'm a man who doesn't know...You come and go"
4. Be a Karma Chameleon in real life
painful_truth

In life there are lessons. To those who propagated the "I believe" campaign and gave this leadership more time to do away with your jobs, best of luck!
reasonreality

I wouldn't be so hard on Flanagan... he thinks that MZ and JH are idiots as well!
Desk Jockey

Mike Z and the GEnsters GEniuses never had any plan. They thought they were smart enough to make it up as they went along, but they were willing to take this "risk" because they would not have to deal with the consequences personally. Think about it - how many of the idiots at the top will truly suffer from this outcome?

"I believe" that this picture sums it all up:
http://www.nationalpost.com/rss/1346445.bin?siz...

To quote a famous fictional character: "What, me worry?"
The psychiatrist

It's important to know where to apply criticism to Mike's role as Nortel's CEO,for the possibilty that maybe Nortel's fate or most of the damage that lead to this miserable state was inflicted before he took the position,but there is one thing that we can all safely fault Mike Z for and that was his inability to realize his limitations,a true leader knows his limitations and will draw on the right people to build a strategy or plan with,in Mike's case it seemed that he hired people who he knew rather than the people who may have truly been right for the job.

In retrospect we can all look back and say he should have done this or should have done that,but the coinicidence of his hirings showed that he did not know his limtations,but instead let his ego take over by playing king when it came to who he sought out for the roles that needed to be filled.
NortelTragedy

Dear Mike,

You are a soulless failure. Not sure how you sleep at night. I hope that your children know you for the sorry man that you are, the people and families that you have devastated, and the financial havoc you've brought upon THOUSANDS of people - employees, pensioners, shareholders, customers and suppliers.

Many
ForeverNT

Totally agree with everyone abut Z's incompetence....might I comment his team of GE losers.....

JHackney - how the hell did he become Pres of Ent? Hmmm. Talk about workplace bully...no respect.....he still doesn't know sh*t

JFlanagan - JH's and MZ's bitch......

DMckenna - first invented the light bulb in 1906...old fart has no clue how to run tech company ops

Worst part about it, they still are paying salary to BB's that are trying to implement projects of no value while letting people of value go....great 6sigma program..talk about a waste of money
reasonreality

I wouldn't lump Flanagan in with the other two. He was/is different and is certainly not their bitch. Not saying if he is good or bad, just that he is not part of their little clique.
painful_truth

The time has come and the bell toll rings
Past its cold winter months, past spring

Incompetence leadership at the helm
Six Sigma Six Sigma --what the hell

Operations, Past Leadership, Economy, CDMA
Whatever excuse could gain air play

The end is near and we are all down
Because Mike Z, Hackney and the staff are all clowns

Our farewell to a once proud Northern King
Leadership could not create value, while competition felt your creative sting
protosphere

Interesting this comes on the heels of government inquiry where he didn't tip his hand on this imminent fire sale. A liquidation that supposedly "maintained value" for creditors more than their employees, who greater contributed to any remaining value they are not entitled to.

Early on they said any sale would be in the best interest of employees perhaps meaning the largest number to be transferred but they had a hard time getting bids. Now, $650M is only a very small amount relative to the grown over $6B they owe after shareholders buying opportunities to got slammed 99% by the CEO leading by example. Now their employees and creditors also get slammed and only after such a short period of time. Just how hard to fill were these positions in retrospect after so many insiders.

Their relentless optimism and lack of forecasts materializing only detracted from further viability and credibility. Is it any wonder they deny red flags yet again to suddenly "hit a wall wall" so ill prepared for this "mission impossible" task with a green team promoting pals and looting the corpse. What a mess into this eulogy.

At least some jobs will be saved in Canada as customers welcome this transformation with relief but a far cry from their peak when ironically winning awards for financial disclosure... to now a board members law firm defending Dunn, Nortel has proven to be a profoundly astounding joke with endless punch lines.

A triple digit multi billion dollar market cap, all vaporized with endless untold stories of horror and chronic suffering from the most dispassionate view and one met like sympathy to one on palliative care where nothing can be done. Executing the endless tyrants won't bring back lives like keeping some drunk drivers off the road either.

As for the wake of destruction left in its path, its better it was never born at all than to wreak such havoc. We need real change towards progress.

Perhaps greater insurance is in order for companies of their past size to minimizing impact our industries and markets. Perhaps they will look at our OSC or governing body's laws to protect us and our economy better.

"Thankfully" they will be gone but Canada will continue to churn out the best engineers bar none hands down to rise again with practical and profitable entities in Canada. Perhaps another viable Avro Arrow but please no more Norte's, Enrons, Worldcoms etc... they are disappointingly deadly, misleading with intent and tyranny.
broadbandbill

Wrong guy, wrong team, wrong strategy = current reality. The real sad outcome is that Z will not learn one Zilch from this experience. Nada...--bb
The psychiatrist

It's hard to realize the impact of your shortcomings when your in a position to negotiate your own compensation.
sick_sigma

I thought that KEIP and KERP were supposed to preserve the value of the company? What happened with that?
reasonreality

at the end of the day, the primary focus for each statutory entity is to maximize the return for their respective creditors. KEIP and KERP were put in place to do that. You can argue about the competancy of the leadership, but if you assume that they are essential to maximize the asset (ie sell it or turn it into an ongoing concern), the you can argue that it is working. There is no question that many key leaders would have left if they did not have this. Again, if you think that they are all a bunch of idiots, then there is little reason to even blog on this. At the end of the day, the creditors are maximizing the asset. There is no bloody way that customers (like VzW) would ever buy from Nortel again (other than urgent stuff) unless the CDMA business was put in the hands of someone that was willing to invest and have the capability to service them going forward. It is laughable to think that there was ever any contemplated outcome.
Guest

	Facebook
	Twitter: markevans
	LinkedIn: Mark Evans
	FriendFeed
	Flickr

Nortel CEO Mike Z: The End is Near

Mark’s Blogs

Find ME Online

Categories

Blogroll