The Fight for Nortel

By Mark Evans | Published: July 7, 2009

The restructuring of Nortel seemed so easy: Spend a few months trying to figure out if a New Nortel could happen before ultimately deciding to toss in all of its strategic chips by deciding to sell everything.

But just when the destruction of Nortel was nearly a fait accompli, MatlinPatterson could throw a wrench in the works by putting together a deal to acquire Nortel.

So what you’ve got are two diametrically opposite approaches: Nortel’s management and board wants to sell everything at the highest possible price, while Matlin Patterson apparently wants to keep Nortel intact.

From the outside looking in, Matlin Patterson looks like a white knight, especially compared to the dark knights now running Nortel. But keep in mind, Matlin Patterson’s bread and butter is acquiring distressed companies, and then maximizing value for its investors.

So don’t expect, Matlin Patterson to take over Nortel, and then play the nice guy. It’s in the business of making – a lot of money – and Nortel could have huge ROI potential.

Without any knowledge about Matlin Patterson’s plans for Nortel, you have to believe it sees a lot of value in Nortel. Rather than Nortel selling everything, Matlin Patterson may believe a better approach is keeping Nortel together, and then de-leveraging itself by selling non-core assets.

This seems like a better and more pragmatic approach than the senseless destruction of a once-great company that is suffering from bad strategic decisions and a lack of long-term vision.

More: If you take a look at Matlin Patterson’s Web site, there’s little information about the company and its investment approach. It was founded by investors David Matlin and Mark Patterson, former distressed debt specialists at Credit Suisse Group.

This entry was posted in Financials, General and tagged matlinpatterson, Nortel. Bookmark the permalink. Post a comment or leave a trackback: Trackback URL.

NTInfidel

If MP sees that much value I think they are clueless to the internal state of Nortel. I really think MP is trying to get NSN to bid higher. Remember MP is a creditor. They would technically be bidding on what they already own a piece of. Kind of like me bidding on my own EBay auction to drive up the price.

But MP taking over is nuts. They take companies and hollow them out until they look “profitable” then sell the remnants. Basically they do “Strip and Flips”. The big problem of trying this with Nortel is it already hollowed/stripped and isn't viable. There isn't more to strip. Actually too much has already been stripped. Aside from it's obvious financial collapse, internally there is workforce collapse, from destroyed morale, loss of many key employees etc. This can't be fixed by vultures and they would only accelerate the decline.

MP clearly has no real clue about the internal issues that they will find themselves out of their depth trying to repair. They will only continue to drag down morale as they will want to continue under creditor protection while the continue to reorganize for at least another year, causing more employees and customers to flee.

The only real hope for the ex-Nortel divisions is a white knight like NSN buying them and thus immediately move them out of creditor protection and providing stability for both employees and customers.

Either way Nortel is dead. With asset sales to established telecoms, there is a chance for the employees at new companies. But with a Vulture like MP, there is only more of the spirit crushing death march into oblivion for Nortel and the employees as well.

If NSN wins the bid I will be cheering and hopeful. If MP wins, I will be spending most of my day working on my job hunt. Which I didn't start because I always assumed that we would be sold to another telecom, MP is the final nail in the coffin of my hope.

(post is something of a repeat, but so is this story)
MerlintheWizard

If this happens , then as people say get rid of all the BoD, i think they have proven they are not up to the Job. Good job they were not in-charge of Apollo 13, at least they made the effort to “work the problem”, maybe they should watch the film rather that Six Sigma stuff
lamarmotte71

Ok call me crazy but here goes. I either have the most convoluted conspiracy theory going about all of this or I am fairly close to the mark.

So fwiw, here's my thoughts:

a) People on this board are really far too close to what a mess Nortel is in, hell, why else would anyone be at this site if we weren't working for Nortel still (this puts you in the 20 percentile, and I'm not sure thats a good thing at this point in time) or you've been laid off (this puts you in the 70 percentile) or you've just been screwed by the company and you're bitter about your losses (this puts you in the remaining 10% or so.. give or take).

b) It's about MONEY people.. that's all that matters. The Maso Cab driver's motivations dont matter to me. The average age of the board being retirement age and not interested in leaving any legacy is also not a surprise at all. Hell, they'd probably sell their own children to Kathy Lee Gifford to work in sweat-shops if it made for a nicer retirement. Kid yourselves not, these are the ppl you dont want to know.

c) MP is an anomaly. If they were truly interested in ressurecting this PoS, they would have made an offer before now.

On to the theory:

- Could it be that they have waited till this long, with no real intention of bring NT back, but rather that they have bought a boatload of pinkies (NRTLQ.PK) stock at 4c and hope to flip it for 10c + when the stock tanks because “Well, hey, we at MP tried but apparently unbeknownst to us, it was too late”. This way they can make at least double if not treble their money and recoup many losses and at the same time claim creditor status as a majority holder for the rest of it?

Now call me a true whatever, but if I were a major creditor to Nortel, I would create a false-positive situation on the market after acquiring as much as I could at the 4 to 5c range and try to flip it at anything above 9c.

And even after making a quick recovery based on emotion, which is afterall how most of the market works, then I'd still take my share of the spoils when it all gets sold?

Your thoughts are most welcome and I'll be reading them all, but I probably wont be feeding any trolls here.

Genuinely keen to hear your thoughts on what is motivating MP to even attempt this.

Best to all.
yes4aapl

lamarmotte71
What motivates MP?
sure its money, they want more on the dollar than fire sale of all assets
so far MP is losing $300 mill on $400 mill investment.
You are confused about shares and debt.
shares and shareholders have been ignored=zero
MP did not buy shares as you think
MP hold bonds=debt in their hand and $400 mill of it.
Someone said they are the biggest bondholder of Nortel's debt.
Beside all of the rhetorics about MP motives for the long run what's wrong in the attempt to start and heat up the bidding on CDMA+LTE?
NSN buying that will make happy only 2500 employees.
What about the rest, about 25 000?
yes4aapl

(post is something of a repeat, but so is this story)
Be honest
so is my reply…
…))))))
MP clearly has no real clue about the internal issues that they will find themselves out of their depth trying to repair.
——
re
Be honest and admit that not only MP thinks that there is more value in Nortel as whole than sold piece by piece…
The other group is Save Nortel group of ex Nortel's managers. You can not use your argument in that case, can you?
What if both parties MP and Save Nortel unite in a bid?
There is billions in deferred tax credits which is value_asset on its own.
btw
I would think that NSN deal if closed can bring new life for Nortel as whole.
The problem is that MP ignores current shareholders. If there is value in Nortel as MP alleges, bring shareholders to the table and share food with them.
ChaiTea

MP is known for buying debt for few cents on the dollar from bigger players.

Does anyone have information on how much they bought the $400M Nortel debt for?

I know that in Feb 2009, Nortel credit default swaps were sold for 12 cents on the dollar. Is there a way to find out if MP bought the $400M debt for $48M in this auction?
lamarmotte71

Hi Yes,

Actually perhaps I wasn't clear about that difference between bondholder and shareholder.

The way I was seeing it in terms of MP, is that it is a true win-win for them:

1. Drive up bid value on assets owing to speculation they will take the company outright

2. Procure crap stock (i.e. less than junk, worthless status) at 3 or 4c range and flip it quickly

3. If I as MP get stuck on points 1 and 2 raised above, just ensure that I procured them through a valid subsidiary and take strategic tax losses against that entity while still claiming creditor status via parent company when it all goes down.

Thanks for the quick answer.
yes4aapl

Whatever it was
MP is in the game
Save Nortel is in the game
NSN is in the game
I don't know why shareholders are out of the game?
Why there is no ASM?
Who BoardsofDirectors represents now?
It's a scam on its own.
lamarmotte71

Hi Yes,

Actually perhaps I wasnt clear about that difference between bondholder and shareholder.

The way I was seeing it in terms of MP, is that it is a true win-win for them:

1. Drive up bid value on assets owing to speculation they will take the company outright

2. Procure crap stock (i.e. less than junk, worthless status) at 3 or 4c range and flip it quickly

3. If I as MP get stuck on points 1 and 2, just ensure that I procured them through a valid subsidiary and take strategic tax losses against that entity while still claiming creditor status via parent company when it all goes down.

Thanks for the quick answer.
borissss

Excellent yes this is the point “What about the rest, about 25 000?”
ChaiTea

What is the breakdown of employees across different lines of businesses? (3500 in CDMA/LTE, ?? in CVAS, ?? in MEN, ?? in Enterprise…)
NortelTragedy

Many of the CDMA resources don't even have a wireless background, much less CDMA. Amazing.
Milan_Bekich

Yo lamarmotte

You're really unclear on the concept. The stock is worthless the bonds are worth pennies, not pennies on the dollar, but pennies. MP has zero interest in NT paper, let alone “strategic tax losses”

MP wants what remains of NT play the end game, milking the installed base for spares and support.

This is the big time, not the Yahoo message board.

Milan
Milan_Bekich

Yo lamarmotte, OK I agree you are crazy, but more importantly you're really unclear on the concept.

The stock is worthless and the bonds are worth pennies, not pennies on the dollar, but pennies. MP has zero interest in NT paper, let alone “strategic tax losses”. Tax loss carry forwards are another issue to convoluted for you to understand.

MP wants what remains of NT play the end game, milking the installed base for spares and support. Ultimately MP will piece part out the hulk, probably at a significant profit.

This is the big time, not the Yahoo message board.

BTW posting twice does not buttress your argument.

Milan
TongueInCheek

Wouldn't this type of deal need to be structured as a Debt-to-Equity Swap? MatlinPatterson owns approx. 10% of Nortel's Long Term Debt. As such, they would need to get other major debt holders on-board (such as Mellon Bank of New York and Flextronics) to get past the 51% debt holder threshold. Perhaps they would need to purchase debt from someone like Flextronics to get this done.
yes4aapl

There used to be 14000 in R&D few years back.
so maybe it's 9000 now
we know about 900 in finance_accounting
yes4aapl

The stock is worthless
—
re
Hi Milan
Can you please honestly answer my questions
you said
The stock is worthless
and in NT case is true
but does it have to be that way?
Why shareholders don't have a say in that situation?
Who BoD represents now?
Who can change the BoD which is responsible for Nortel in BK now?
NTInfidel

The lead of that ex nortel save group is elderly Robert Ferchat who is 74 years old and was at Nortel 20 years ago. He has no clue about current circumstances and telecom is a completely different game than when he was merely middle aged 20 years ago. His group know nothing and stated they are looking for someone else to bankroll them so they can have a look at the books. This is not a serious bid.

MP is doing the obvious trying to drive up the price so they get more of their money back.
NTInfidel

Sales of other units are in the works, you don't expect them all to be announced at the same time.
protosphere

“Who BoardsofDirectors represents now?
Board member Manley's Law firm represents Bill Dunn. =)

Even this board continued to approve lottery pay practices. CEO reciprocated by defended this board ironically trading losing options to cash again. Would they have traded them if they went up? Why when down, this defeats the purpose of performance and incentive to issue them to begin with.

Their new army of lawyers into bankruptcy take a priority in getting paid first to other creditors as they loot the corpse and cut severances before the courts and then try to elude this in CEO's parliamentary hot seat inquiry, where Nortel announces selling the farm the very next day with no mention of this during the inquiry than reiterate value which is the issue of late.

Hard to say what anyone does there anymore.

Nortel wants money to cut costs or sell assets as debt bag holders want more on the dollar. It is all about the money than any honorable salvage for anyone connected to this mess. Now value is suddenly controversial, patents, it is not dead but is worth something, neglecting catalyzed losses after a thousand cuts when better heads prevailed and all failed. So what is it worth? Who knows… let alone today.

Lets wee what the the next quarterly numbers reveal to see who is more correct, Nortel's management or their debt holder thinking it has more value than NSN is willing to pay with EDC support.
GoProto

i totally agree .. companies like MP don't make “impulsive decisions”. If they were really thoughfully serious about taking over NT for any other reason than money it woulda happened awhile back. i don't buy all this crap about them suddenly seeing or acting on this because NT is a valuable company that deserves to be saved. Yeah, i have a bridge i can sell you..
GoProto

There's a reason there is sparse information posted on MP web-site about their company and its investment approach- what should they say- we are a wolf in sheep's clothing- we take over distressed companies that thought they had it bad, until the fleecing really begins with us and our “investment approach”. No nice way to say that in a PC PR way..
yes4aapl

i don't buy all this crap about them suddenly seeing or acting on this because NT is a valuable company that deserves to be saved. Yeah, i have a bridge i can sell you..
=====
re
Mike Z=Nortel lied to creditors.
Mike Z supposed to make restructuring Plan so creditors would act on that.
Yes, it's recently Nortel said about NSN and selling all the other assets. It's been like a carpet pulled out of under creditors feet. That's Nortel! Never played fair with anyone! NTInfidel is biased about that.
age does not matter in that case
telecom knowledge? NTInfidel is just wrong about that.

Now creditors are trying to save anything from just fire sale process.
I would expect them to unite wit Save Nortel and Robert Ferchat.
The psychiatrist

“This seems like a better and more pragmatic approach than the senseless destruction of a once-great company that is suffering from bad strategic decisions and a lack of long-term vision.”

Mark

whatever the outcome of MP's involvement in trying to buy Nortel as is,one thing is certain and that is that no matter how one views MP's motive they are proving at the very least the following

1)they believe that there is alot of hidden value within Nortel

2)the fact that they are now looking to possibly acquire all of Nortel shows that they are at least willing to give Nortel a chance at resurection,even if it does involve major cost cutting.

3)even if their ultimate goal is to sell the newly restructured Nortel for a hefty profit,it still demonstrates to the world that they are at least willing to put in the effort to get there.

4)and if they do ultimately succeed in buying Nortel and restructuring it for resale-it will prove what many have known for a long time and that is that Nortel's current management are extremely incompetent.

I would expect Nortel's current so called “executive leaders” and BoD to attempt to make it difficult for MP to buy Nortel for the very same reason I mentioned in number 4.

Finally even if MP were to fail at restructuring Nortel if they do buy it,at the very least it showed that Nortel's current management were lazy and just wanted a quick golden parachute exit by previously announcing that they were looking to sell off all of Nortel's businesses instead of what MP may be trying to do.

The ultimate embarrassment to MIke Zafirovski and the BoD would be to see MP succeed at restructuring a new Nortel.
yes4aapl

Finally even if MP were to fail at restructuring Nortel if they do buy it,at the very least it showed that Nortel's current management were lazy and just wanted a quick golden parachute exit by previously announcing that they were looking to sell off all of Nortel's businesses instead of what MP may be trying to do.
============
re
Buying and restructuring Nortel is much better and easier thing to do by MP united with other creditors.
If they buy Nortel for $2 bill they will pay with cash available in Nortel's banks (theory)
They don't have to pay main creditors from that deal as the creditors will own everything. They don't have to pay Pension Plan as the deficit can be negotiated. The Pension deficit is huge. $3 bill or more. If Nortel stay basically in tact the deficit does not have to be paid; maybe just small portion like $400 mill just to address the deficit.
Yes, Pension deficit was the main reason Nortel use bankruptcy protection. in my opinion
and there is that biggest Nortel's asset, tax credits… open book…in my opinion
Casual_Observer

Nortel’s management and board wants to sell everything at the highest possible price

Highest possible price ? I don't believe that for a second. Mike Z had a chance to sell Nortel for much higher prices even 6 months ago. Instead he chose to try and keep it together. We are in a deflationary spiral the likes of which hasn't been seen or understood by anyone currently in the corporate world. I say keep the company together and replace the management and slash management wages by 30%. That alone would go a long way towards lowering operational costs in line with global competitors.
Casual_Observer

Here is more about MatlinPatterson…they also run a hedge fund.

http://en.wikipedia.org/wiki/MatlinPatterson_Gl…
silentwatcher

If MP ends up buying NT, I feel sorry for the employees who had a chance of moving to NSN and growing there. True CDMA won't last for long but it does give some of the smart ones who make the transition a chance to move from CDMA to UMTS or LTE. Will the NT wireless business really do well, if MP bought it? I doubt it. VzW (probably next round) or ATT or TMO aren't going to give their LTE business to Nortel coz MP has bought them. I as a customer would be wary abt doing business with a company now owned by a “vulture” capitalist. Talking to some of the NT CDMA/LTE employees they really felt like they could finally see the light at the end of the tunnel with the NSN deal this time but I guess we will have to wait till june 24th to see if that light at the end of the tunnel is a train called MP or not.
NortelEngineer

This is not understandable why will you not prefer Nortel when it would be a viable company ….

What is logic behind your comment…..Avaya/Simens already have been take over by PE firms and doing very well..
silentwatcher

I think we are way past the stage where NT will be a viable company again. There is way too much dead wood left and a whole lot of issues. Sure we can mend broken stuff but there are some things that can't be fixed after a point like NT and if MP was really interested in rebuilding NT into a viable company, they wouldn't have waited for 7 months after bk to make an offer. Didn't they believe 7 months back that NT could be fixed? for god's sake even the Govt of Canada washed their hands off NT. MP is just looking out for numero uno and trying to make as much money they can out of this sinking ship. I just hope for the best for the employees.
NT_survivor

Had some fun over the 4th weekend and thought I would share a priceless moment.
Glock G19 – 500$
9mm ammo – 15$
Full size prints of zeroman and hackman riddled with bullets – priceless

http://www2.snapfish.com/thumbnailshare/AlbumID…
allaboutmyself

Huh?
GoProto

i respectfully disagree. i don't see how Save Nortel and MP have anything in common as far as their motivation and objectives in a future (or end game as it were) for NT. Save Nortel may very well believe that NT has “value” and “deserves” to be saved. MP does not believe in anything, except the opportunity to lose less money. Even if they were to join together initially, it's a marriage that will never last.. way, way out of sync in where they each come from in this.
NTInfidel

It doesn't prove any such thing because they have made any kind of offer yet. These guys are currently creditors and at this stage they are merely posturing likely trying to drive up the NSN bid so they increase how much they get back on their debt.

I see two possible scenarios here:

1: MP is trying to pump the price by posturing possibly eventually even bidding on an asset it already is part owner in. But will not buy.

2: MP tries to work some kind of sweetheart deal with the other creditors allowing them to assume control for little or no money while promising them a better outcome. And then MP will do the sale and make money off it. The other creditors will get shafted because the pieces will go for even less as the delays will further devalue assets.
NTblinker

Do not forget one point, MP is not only interested in NSN deal but also working to put a bid to other parts of Nortel to avoid them from firesale or liquidation processes. So they are not competing with NSN, They already settled the deal issue now, but we have to ait until july 24 to confirm it. MP will be the winner,
ChaiTea

I wish there was a betting pool NSN or MP. I bet on NSN.

Mark, Perhaps its time for a poll?
NTInfidel

There is nothing settled on NSN deal except that MP lost it's bid in court for a delay. You can't gauge if they will “win” when we don't even know if they will bid. If they do bid I suspect they are just trying to pump the price and will be fearful of winning. If they do win, I bet they start looking for loopholes to scuttle the sale.

I have no idea what they plan to do, but MP with any piece (worse with all) of Nortel will be about as successful as Cerberus was with Chrysler.

With no telecom experience, no due diligence on the internals (haven't seen MP on campus), MP will be even worse at managing Nortels slide than Mike Z.

MP takeover would have to reassure and give hope to employees (they can't and won't) Like wise for customers. Customer and employee bleed will accelerate.

By the time MP gets it's act together and realizes the mistake the sale price will like have fallen another 50% making the current “fire sale” look like a brilliant deal.
S_O_S_This_is_HMS_Nortel

LTE program is run by the same clueless directors/VP that ran WiMAXe, Neptune aground…The talented engineers have all moved on to better pasture months ago. The rest is just hoping for a miracle revival at NSN…It won't happen.

One way or the other Nortel is dead !
ChaiTea

U.S. antitrust regulators have approved the Nokia Siemens bid for a Nortels CDMA/LTE.

Not really a big deal since anti-trust was never expected to be an issue.

http://tech.yahoo.com/news/nm/20090707/tc_nm/us…
Theleftbehind

I was told that several ex execs are behind MP's offer. This will be interesting.
whatnext4nt

“The talented engineers have all moved on to better pasture months ago”

This is simply not true. Some talented engineers have left, but many more are still there.
whatnext4nt

As silentobserver and hopefully others have pointed out, the real issue is how the major wireless carrier customers would react to this proposal. If you were one of these customers, who would you prefer to partner with, a very large established wireless networking company or a consortium of distress investors? If the big wireless customers are not comfortable with this deal, it will be a killer for Nortel wireless business in the longer term. This kind of deal could be self destructing – possibly destroying NT LTE opportunities and removing the opportunity for transitioning NT CDMA customers to LTE. It could also be harmful to Nortel based CDMA business due to the lack of a reliable roadmap to LTE and concerns that the new Nortel would be an isolated and small player without the scale to compete with the big guys
TongueInCheek

ME Consulting supports death wishes against Nortel executives. Why would that surprise you? Fascinating business model for a Social Media Expert.
Soon2BExNortel

Anyone want to offer an informed opinion on the likelihood of MP making a serious bid for Nortel?
ex__executive

Wow, you sound like one of the 'architects'.
ChaiTea

MP is a serious vulture with a track record of swooping in onto distressed companies.

In my opinion, they will make a play for Nortel. Right now they need to convince the other creditors to join in the play, or accept the fact that they will get mere pennies on the dollar. Except for Airvana who will not support MP, which option do you think the other creditors would take i.e. pennies on dollar NOW or a chance to get more in the long run in the best case (or pennies on the dollar in the long run in the worst case if MP fails and has to liquidate Nortel)?

If they do manage to get the other major creditors on board, and agree to remove the 4B$ debt in return for new equity, then using the current 2.7B$ cash on hand, they would need to only inject perhaps a $1Billion in capital (using financing to spread risk) to get the Nortel engines to start running again.

What does MP have to loose in this game? Loose pennies on the dollar now or loose pennies on the dollar later if things dont work out? Does it matter to them?
borissss

I don't believe that NSN will hold the employees for long.Besides,what about the other employees all over the world?
borissss

I agree with you.
horace_grimswold

Better not be John Roese, Frank Dunn, and Bill Owens behind the wheel of this one.
horace_grimswold

how bout a betting poll?

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