Why Did Nortel File for Bankruptcy Protection?

“In hindsight, it was a strange decision. The only way to explain it is that the board panicked. Spooked by the volatile economic conditions and likely bullied by debt and bond holders, the board took the easy way out by pulling the trigger on the asset sale. In the process, it decided to kill Canada’s flagship high-tech company.”

Although a Canadian company, Nortel ended up under control of USA hands. Canada lost control when Nortel made stupid purchases during the internet mania years. We keep hearing how bad Nortel was managed and that is true! but it was mismanaged deliberately so that Nortel's assets could be sold at fire-sale prices. The BOD and Mr Z did what they were supposed to do, move valuable assets away from Canada.

Same thing is happening with Abitibi. As soon as the merge happened with that company, the stock fell to zero. Why, it’s under USA control.

Bottom line, it's a clever way to “steal” valuable assets.

Canada's only hope comes when the sale for the patents take place. The government can stop the sale if they decide it is in Canada’s best interest. However, the damage has already been done. USA may give up the patents by selling to RIM, since they got what they wanted..

Do you doubt Bagwell's reporting of this?

“On Jan. 15, Nortel would be obliged to pay $107 million (all figures in U.S. dollars) in interest on its multibillion-dollar, long-term debt. Cash wasn’t the issue. The company had some $2.4 billion. The problem was that most of it was held by Nortel’s foreign subsidiaries and committed to joint ventures and such obligations as the pension fund for its British workers. It would not be easy to repatriate the money. Just $841 million of Nortel’s cash was available in North America, $176 million of it in Canada. So the Jan. 15 interest payment represented a significant portion of available resources. In three months, another interest payment would be due. “

http://www.ottawacitizen.com/business/Part+Last…

Also: Management had publicly said back in 4th quarter 2008 (when MEN first was announced for sale) that they needed to do more layoffs, but the “restructuring costs” (severance payments) would be too high. So I suspect the idea was to declare Chapter 11, whack a bunch of headcount, get a high price for a few of the divisions, and emerge from Chapt 11. When a “high price” did not materialize, it was game over.

Finally: Bagwell's reporting said that Mike Z. was against declaring Chapter 11. Maybe the Board belatedly came to the conclusion that if Mike Z. was against it, maybe the Board should be for it!

I agree that the fundamental problem was the current greed/hubris/star US business culture. This culture is designed to enrich the management and selected investors (hedge funds et al) at the expense of employees and the majority of investors and bondholders.

This is not a USA vs. Canada, this is a MBA/Management change that happened in both countries starting about 10 years ago. Used to be that in the Telephone Industry everybody started at the frame and worked their way up. Management had Technical backgrounds but not many had any business background. Then we switched to all business no technical, and any technical skills became a commodity. Cheaper is always better.

Now when you tell management that it takes 3-5 years to really start to understand the CS2K, they look at you with disbelief and laugh. They then commence replacing us with new grads. 2-3 years later, the new grads are still struggling with the complex issues because the Business Oriented Management does not understand the complexity of the product, which lead to the New Grad technical development was not kept ongoing.

No miracles, tall mountains to climb, rocky roads to cross, grow like a plant or extinguish, without oxygen when this BSc really meant carbon dioxide…

Perhaps the term great company was a typo for 3 to 5 years folding in the 3rd., trying to manipulate stock price at $20 buying opportunity, Hack taking Enterprise to a new level, not going bankrupt to WSJ speculation, as the new green private jet was grounded before their recycling coffee cups.

Largest asset on books they sought to clean and that we bellyached about so long was a tax credit, and they are being sued for this, misleading.

Nortel lies. Pathologically!

There is a piece of the story we know very little about and will likely not know for a long time.

- What were the major points of influence in the decision to sell all business units rather than sell a few business units and restructure the rest?

With the Bankruptcy Protection filings, Mike Z essentially lost the majority of his power and decision making capabilities. These powers shifted to Ernst & Young, the Bondholder Committee, the Creditor Committee and the Board of Directors. We've seen thousands of staff let go without severance and numerous real estate contracts exited with minimal costs. I believe this was the primary goal of the Bankruptcy Protection proceedings now that we know that much of the cash on hand was not available for restructuring purposes.

Add the stopwatch of love and timing, Lean Six, to everything, and you've got a sexy business rhythm.

Each taking a hefty tip for their noble efforts to keep it simple…

yaya
Mark Evans is just making you think, use your brains oer something…
Mark Evans is on of the smartest… I have ever known…
the guy who lol the next day NT proclaimed triple digit profits in 2005… of course there was no profits,.. in restated numbers I found a reported loss in Q3 2005!
but Mark knew that!
He is an insider of NT!
I am not… simple guy with simple life saying yes4aapl…
Mark Evans is an insider!

NT ..$380 billion in Market cap and 30% of the TSE , worth more in the year 2000 than the big 3 Banks combined. Every one and there dog owned shares , in there mutual funds , in there pensions. And now its reduced to ZERO $$$$$$$$$$
And Wealth is power…
Bankers are a Cartel that control society through the issuing of money/wealth and Cartels do not permit competition. This IS the direction of MOST publicly traded companies .. given time
Its the elimination of the middle class and its in full swing….
Better known as the Transfer of Wealth

This was NO accident, its a Heist , most companies that file for CH7/11 have no money in the bank … 2.4Billion? who are the secured creditors? …BOND HOLDERS/BANKS … Who gets the shaft?

The Publicly traded Shareholders & Pensioners

Exactly – the used Chapter 11 to give themselves a freer hand in making their choices as to whom to screw (and whom to reward with obscene bonuses)…

But with CVAS adding new customers and growing both market share and revenue in 2009, even as the overall CVoIP market shrank, there were at least parts of Nortel that could have emerged as a healthy new business if those in power had chosen that path, which they could have done even as late as last month if they wanted to.

But the bankruptcy overseers did not trust any part of Nortel to emerge – which calls into question the competence of Nortel's leadership (i.e. the same folks who gave themselves $45 million in KIEP/KERP retention bonuses on their way out the door to new jobs with the auction winners). Yes Mike was slow (and lying through his teeth about his oft-delayed re-org plan), but he was just waiting for that third $50,000 paycheck in July to bow out. I don't believe there ever was a plan to emerge – just drag things out long enough to pay plenty of bonus money to the execs in lieu of severance for long-term workers. Criminally sad…

same old report, same old blog. as much as I like this blog, Mark stop rehashing the same story again and again. It is becoming quite annoying. Nobody can rewind this nor go back in time. The deed is done so speculation over what could have been is a waste of time.

All we can hope is the displaced get some compensation.

I dont think MBAs even got a chance. In fact it should read Inexperienced Execs, who were scared or petrified to even get new or experienced MBA grads to look at the business. Most execs did not understand, know how to manage or lead the business. They were just there in the right place at the right time. And they did not want to change. To the contrary MBAs were muzzled and locked up. The old farts never wanted to learn on what the MBA grads could offer.

For everytime I heard 'do not rock the boat' or 'if it aint broke dont fix it', if I got a dollar I'd probbaly be sitting on several hundreds of thousands.

January 19th is a big day for Avaya as they announce their Product Plan of Record. Those interested in the technology migration will have interest in that event. The Telecom Blog will likely be a very good source of information on that topic.

Great news story!

RCMP has people from OSC working there!
OSC works too closely with industry when they are suppose to be regulators. Tiny OSC head makes 4 times SEC's and manages a fraction.

OSC is like “fox looking after chicken coup” and “reluctant to put their pals in jail”, as one major TV station's journalist told me.

This story also indicates what I reiterate so many times, “what don't we know about”, as she brings this battle to Ottawa claiming there is plenty of corporate fraud in Canada today.

Open season on the investor remains in Canada's fraud haven with lax inquiry and penalty. Plas at the highest circles.

In able for a heavyweight like Nortel to have paid the largest fraud settlement in Canada, with zero fine from OSC and only $75M fine from what ex-CFO Currie called their “friends” at SEC, regulators are acting contrary to their mandate like EDC who exported jobs or financed foreign orders. Even high government proflilers sat on their board with no telecom experience.

Is the Canadian establishment crooked when integrity and honesty is an assumed ideal behind the civil and humanitarian circles of stellar people in our most lucrative neighborhoods? Do they really know thy neighbor I ask!

Corruption at the highest levels from adgates /airbusgates /Bre-X/Nortel…etc… and no one gets quarter century sentences as in the US and as they kill many victims lives…

Heck, they even openly legalized casino gambling, cut social programs since the mean spirited Harris days, with past government heads worrying more about aid to Africa today than looking at people in their own backyard struggling to survive working 2 jobs or seeing life savings vaporized, suicides, divorce, foreclosures, bankruptcy, record debt, pensions and severances cut…Who can donate to assist until things are fixed in our own backyard, … mega burn big bucks governments turning a blind eyed juggling big business as well as they did the forced Nortel inquiry or unit sales. Keystone moral no bodies against big bucks tyrants, who is winning with Bells on.

Legalizing gambling that took the mob years in a wild west US town, these clowns contrary to public opinion no one got to vote on, legalize theft against their own citizens at a penstroke. Did this save as many lives as the casino suicides, mass exodus from homes, divorce, etc., to line more pockets with $2B profits as they seek an OLG scapegoat like OSC fining RIM a precedent amount. A joke.

Too many crooks in the system sheeple fall victim to. Even our governor general can rewrite the laws of physics like road rage Joel if I may be so crass.

We need radical change, and it can not come soon enough. The wrong people are in power. We need more humanities that mean spirited Harris wanted to scrap from universities curriculum of all things.

This is all truly insane. In wonderful clean Canada to boot.

MBA = Major Bullsh*t Artists
LLM = Lame Lying Morons
No room for simple common sense.

To avoid costly severance payments since they knew that downsizing of thousands (upon thousands) of employees was necessary.

There were Six reasons why they filed.
1)) There was no Gov't bailout.
2)) They knew the official opposition would keep the gov't preoccupied and distracted by harping on the rights of terrorist jihadists in parliamentary session.
3)) They knew the federal, provincial and municipal governments had far more confidence and faith with Nortel ending up in the hands of foreigners rather than Canadians. Can't blame them for that based on Canadian gov't policies.
4)) They knew things were only going to get worse and their Debt to cash flow position was going the wrong way exponentially.
5)) They had no equity and no hope based on where they ended up and it really was the only way out.
6)) The Board of directors knew the gig was up and they couldn't fly in airliners anymore knowing the full body scanners were about to hit the streets.

Thats right. The government bailed out GM. Their numbers can in today and again they are losing money hand over fist again. Ford on the other hand had a big positive increase. They were not bailed out. Nice to see the gov't bail out all the union members and give them job and security for life. Are these guys bilingual and or are they members of a visible minority group.
The official opposition is only interested in having an orangutang fit and
get themselves in a tizzy hammering the feds on how jihadist terrorists are detained while fanatical jihadists almost blow a plane up over detroit, all the while our brave soldiers fight and die to keep the terrorists on their own dirt patch and here we have iggy and rae eager to get back to work to get on with the detainee inquiry. What a crock. What a joke. Nice to see the americans win the World Juniors tonight.

Sounds like Mulroney , sell Canada out for Free Trade (but not for the citizens of Canada)…… Then when you resign your post as PM … move to the USA and sit on the boards of ..how many ? some 15 companies? and make 14 million? in the first year out of office .. What did the Canadian tax payer pay him while PM? $400 thousand per year? 15 companies that highly benefited from Free Trade .. 15 companies that probably never seen him show up for work…

They are all Slime Balls..

Paul Martin .. Loves Canada , loves it so much that his shipping company is registered in a counties where he pays almost no income Tax . Just make sure you pay yours!

http://www.nowar-paix.ca/Posters/Paul%20Martin%…

In my experience, neither crusty old-timers nor young buck eggheads at Nortel really tended to dialogue and gel all that well, and to mediate between the two, to find common goals and a definition of success that meant something to both, was at times challenging.

Unfortunately, telecoms is arguably far too complex a business for one man to know everything about, so folks needed to communicate. To the old-timer it meant reminiscing about the good old days; the young gun replied by waving a Six Sigma graph.

It may too late to teach OTs how to create a simple Excel spreadsheet (attractive enough) to justify their existence, but those MBAs should be required to do periodic time on the lab floors to learn why running 150 ft of cable doesn't alway take “10 minutes, period”

20 bucks says you can't get an MBA to run cable, produce an original thought, or buy a round for the road crew.

RIP Nortel, It was fun at times and Hell on earth.

The big market correction was an entirely predictable – and predicted – thing. The only question was when.
Nortel's hopeless BoD pretended it would never end (they're not alone there, but such lazy negligence is no excuse).
They sat, doing nothing (as always), watching Z and mates STILL lose money in what was an unprecedented and prolonged global economic boom. When it stopped, they knew their losses would increase dramatically. They never, ever cared about overall profit. Approve 2 wireless deals in India that would lose over a billion? who cares, the US reports a profit and that's where we sit, so that's all that matters. Much of that India deal transacted through a Canadian Nortel entity as well as Singapore. One assumes to use their profits to help fund those losses.

They called Ch11 to avoid payouts to employees (they knew were inevitable), & avoid responsibility for their under-funding of pension funds. That means, in common-sense & ethical terms, (sadly not legal), they stole money from those plans for years before Ch11.

Here's one – I think the BoD committed a major blunder, when they changed to globally use the US GAAP rules. They were chasing US stock market dollars, because all the BoD cared about was increasing stock price & revenue, not profits or any silly stuff like that. (was a bit of a fad in the late 90's).
That change is when (& I say why) the rev rec reporting disasters started. BoD did nothing to change their staggeringly large Finance groups in Nortel, with their hundreds of stand-alone & disconnected reporting tools globally.
I remember talking to Finance guys in a country (not in Nth Am), who were shaking their heads at the complexity of US GAAP (with no disrespect intended at all to US folks, the US GAAP is pretty bad as far as GAAPs go). They could not see how Nortel could meet those rules, with the training and tools and processes on hand. In effect, it turned once-simple rules into complex judgement calls, often at transactional levels (i.e: should we recognize this yet?) As we all know, they got it wrong many times. That was apart from the fraud of Dunn & co.
Intersting, huh? Junior finance staff on the other side of the planet knew, but BoD went ahead anyway…. that change was a pointless failure. Did nothing

The big market correction was an entirely predictable – and predicted – thing. The only question was when.
Nortel's hopeless BoD pretended it would never end (they're not alone there, but such lazy negligence is no excuse).
They sat, doing nothing (as always), watching Z and mates STILL lose money in what was an unprecedented and prolonged global economic boom. When it stopped, they knew their losses would increase dramatically. They never, ever cared about overall profit. Approve 2 wireless deals in India that would lose over a billion? who cares, the US reports a profit and that's where we sit, so that's all that matters. Much of that India deal transacted through a Canadian Nortel entity as well as Singapore. One assumes to use their profits to help fund those losses.

They called Ch11 to avoid payouts to employees (they knew were inevitable), & avoid responsibility for their under-funding of pension funds. That means, in common-sense & ethical terms, (sadly not legal), they stole money from those plans for years before Ch11.

Here's one – I think the BoD committed a major blunder, when they changed to globally use the US GAAP rules. They were chasing US stock market dollars, because all the BoD cared about was increasing stock price & revenue, not profits or any silly stuff like that. (was a bit of a fad in the late 90's).
That change is when (& I say why) the rev rec reporting disasters started. BoD did nothing to change their staggeringly large Finance groups in Nortel, with their hundreds of stand-alone & disconnected reporting tools globally.
I remember talking to Finance guys in a country (not in Nth Am), who were shaking their heads at the complexity of US GAAP (with no disrespect intended at all to US folks, the US GAAP is pretty bad as far as GAAPs go). They could not see how Nortel could meet those rules, with the training and tools and processes on hand. In effect, it turned once-simple rules into complex judgement calls, often at transactional levels (i.e: should we recognize this yet?) As we all know, they got it wrong many times. That was apart from the fraud of Dunn & co.
Intersting, huh? Junior finance staff on the other side of the planet knew, but BoD went ahead anyway…. that change was a pointless failure. Did nothing for the share price (market crashed anyway back then, as they always do), and helped create a long string of very public and damaging reporting failures.