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Nortel seeks advice about potential bankruptcy, media agencies report

Posted December 10, 2008
Updated December 11, 2008

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— Telecommunications gear-maker Nortel Networks is preparing for a possible bankruptcy filing in the event a recently launched restructuring plan does not work, the Wall Street Journal reported Wednesday.

Later in the day, Bloomberg reported a similar story. Both organizations cited unnamed sources.

A Nortel (NYSE: NT) spokesperson told the Journal that “no bankruptcy filing is imminent.” Another spokesperson told Bloomberg the same thing, saying Nortel was focused on an ongoing reorganization.

Nortel, which is based in Canada, employs some 2,000 people in the Triangle region.

Bloomberg reported that Nortel was talking with Wall Street investment firm Lazard Ltd. and the law firm Cleary Gottlieb Steen & Hamilton about its options.

Nortel shares have fallen below $1 in recent weeks, and speculation has grown among analysts that the firm might run out of cash as its business slowed. Nortel has been trying to sell its Metro Ethernet business unit, but has not found any takers.

Bloomberg noted that the company has lost some $7 billion since Mike Zafirovski took over as chief executive officer in 2005. Zafirovski has put his own management team in place, launched various new initiatives and restructurings and made several rounds of layoffs in attempts to right the company. He also negotiated settlements of lawsuits that resulted from financial scandals that predated his arrival and engineered a reverse stock split in a bid that temporarily lifted the share price.

A bankruptcy filing would make Nortel the first major technology company to take that route in the recent economic crisis, though its troubles precede the credit crunch by years. Former Chief Executive Frank Dunn and two other former executives face civil suits and criminal charges for allegedly misstating the company's financial results in 2002 and 2003.

“They may be able to avoid [bankrputcy] if it turns out they have customers with large orders or they can get relief from bondholders,” Robert McWhirter of Selective Asset Management in Toronto told Bloomberg. “The [Nortel] bondholders also might prefer bankruptcy because then they are first in line for assets.”

Fighting sluggish sales, Nortel recently announced plans for layoffs and other cost-cutting measures. Its shares traded at 52 cents Tuesday.

Nortel is working with advisers to consider future strategy, Ronald Alepian told the Journal.

"We remain focused on carrying out the restructuring we outlined on Nov. 10 to cut costs," he said.

Nortel also may seek assistance from the Canadian government, the Journal added.

Nortel shares fell 12 cents, or 23 percent, to 40 cents in morning trading. The stock briefly hit 37 cents, an all-time low. The market values the entire company, with about 30,000 employees, at about $190 million. The stock closed at 40 cents.

Spokesman Mohammed Nakhooda said the company is still committed to a restructuring plan set out a month ago, which calls for the company to bring down costs by $400 million per year.

Nakhooda also pointed to a Standard & Poor's report that said Nortel should be able to maintain adequate liquidity in the next 12 to 18 months.

In its latest quarter, Nortel lost $3.41 billion, or $6.85 per share, on $2.32 billion in revenue. The results included a noncash charge of $3.21 billion to write down goodwill and deferred tax assets.

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