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Nortel files for Chapter 11 bankruptcy protection

Struggling Canadian networking company plans extensive business, financial restructuring

By Mikael Ricknäs
January 14, 2009 12:00 PM ET

IDG News Service - Financially struggling Nortel Networks Corp. today filed for Chapter 11 bankruptcy protection in the U.S. and said it also is seeking protection from creditors in Canada and Europe.

As part of its announcement, Brampton, Ontario-based Nortel said it gave "full consideration to the alternatives" to bankruptcy. But given the ongoing economic downturn, the company decided that the bankruptcy filings were in its best interest long term.

The telecommunications equipment vendor added that it will undertake "a comprehensive business and financial restructuring," and that it expects to emerge from the bankruptcy process "more focused, financially sound and competitive." The filings come just two months after Nortel announced its latest restructuring, which included a plan to cut 1,300 jobs and eliminate its centralized development, sales, marketing and support organizations.

"Nortel must be put on a sound financial footing once and for all," President and CEO Mike Zafirovski said in a statement today. "These actions are imperative so that Nortel can build on its core strengths and become the highly focused and financially sound leader in the communications industry that its people, technology and customer relationships show it ought to be."

Nortel had a $107 million bond payment due this week. Last month, the New York Stock Exchange informed the company that it would be delisted if its share price didn't rise above the minimum of $1 within six months.

Nortel shares closed at 32 cents a share on the NYSE yesterday. Trading was halted today in New York and on the Toronto Stock Exchange in the wake of the bankruptcy filings.

All last year, Nortel tried to get a handle on its dire financial situation, including several rounds of layoffs, attempts to sell its Metro Ethernet unit and a WiMax development deal with Alvarion Ltd.

"In some sense, it's not a complete surprise. Nortel has been struggling because of its heavy exposure to CDMA combined with the overall downturn," said Mike Roberts, an analyst at Informa Telecoms & Media, referring to the company's heavy investment in Code Division Multiple Access technology.

Nortel has also never quite recovered from a financial meltdown that began in 2000, Roberts said.

Many telecom equuipment vendors are struggling. For example, Alcatel-Lucent is also having a hard time, but it has more scale in the infrastructure segment than Nortel does and leads in some markets, Roberts said.

Just as the former Alcatel SA and Lucent Technologies Inc. merged in 2006, that option is one possibility for Nortel. But how that might play out is hard to guess, according to Roberts.

"There have always been deals that have been worked on and kicked around involving Nortel," without coming to fruition, he noted.

Part of Nortel's business was linked with Huawei Technologies Co., and there have been rumors regarding Nortel's and Motorola Inc.'s network units pairing up. But none of that has actually transpired, Roberts said.

Nortel hired lawyers late last year to consider filing for bankruptcy but announced in December that it would stick with the cost-cutting plan laid out in November. However, financial analyst Nikos Theodosopoulos of UBS AG said in December that a bankruptcy filing early this year could be the best plan for Nortel to pursue.

Reprinted with permission from Story copyright 2014 International Data Group. All rights reserved.
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