Business

Nortel files for bankruptcy protection

Posted January 14, 2009
Updated March 9, 2009

— Reeling from the sudden drop in demand for its voice-only telecom-network equipment, Nortel Networks Corp. (NYSE: NT) filed for bankruptcy protection Wednesday.

The Toronto-based company, which employs about 2,000 people at its campus in RTP, has been trying to cut costs and sell assets.

Nortel spokesman Jay Barta said the Chapter 11 filing in Delaware bankruptcy court will have no immediate impact on the RTP operations, but he said that might change in the future.

"We are not announcing any changes specific to Nortel sites or employment connected with this announcement at this time, but as part of our restructuring, we will be reviewing options to reduce costs," Barta said in an e-mail to WRAL News.

Nortel Networks building in RTP Nortel can reorganize under Chapter 11

The bankruptcy filing comes as Nortel, which faces a $107 million payment on debt on Thursday, continues to struggle financially. The largest maker of telecommunications gear in North America, the company has failed to find a buyer for one of its networking divisions, a key factor in its bid to recover financial stability.

Creditor protection would give the company more time to explore restructuring options or sell off some of its assets.

"Nortel is still very much in business, and we will continue to be 100 percent focused on driving results for all of our stakeholders," Barta said. "We expect to emerge a more focused, financially sound and competitive company."

Nortel  said in a release that it had been in the process of a turnaround since late 2005 but added that "the global financial crisis and recession have compounded Nortel's financial challenges and directly impacted its ability to complete this transformation."

Local analysts said the bankruptcy filing doesn't come as a surprise. Nortel has struggled since the technology bubble burst in 2000, they said.

Last month, the company launched a restructuring plan that eliminated 1,500 jobs.

"The goal of Chapter 11 is to emerge with a different type of firm that's restructured. We can expect some divisions to be sold off, but the goal is to create something viable," said Campbell Harvey, a professor of international business at Duke University's Fuqua School of Business. "The one thing we do know from Chapter 11 filings is (they are) almost always associated with the loss of jobs."

Nortel President and Chief Executive Mike Zafirovski said the company filed for Chapter 11 protection with a $2.4 billion Canadian ($2 billion) cash position.

"Nortel must be put on a sound financial footing once and for all," Zafirovski said in the statement.

The company has been attempting to recover for years from an accounting crisis that affected results and caused shareholder lawsuits, regulatory investigations and the firing of key executives, including former CEO Frank Dunn.

Nortel stock, which once traded at more than $1,200 Canadian per share on a pre-split basis during the tech bubble, closed Tuesday at 38.5 Canadian cents a share on Canada's main stock exchange.

The Toronto Stock Exchange halted trading of Nortel's shares Wednesday as the stock fell 30 percent in pre-market trading.

Harvey said corporate bankruptcies started in the retail sector a few months ago and are now spreading.

"We're seeing this ... fester in other types of industries," he said. "There's going to be more. The list will grow."

62 Comments

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  • dws Jan 15, 11:21 a.m.

    starglow's statement regarding "Greedy executive compensation packages and perks have become outrageous" is indeed correct, and is not driven by lies driven from Congress and the media.....from the senior executive perspective, the "let them eat cake" attitude certainly does exist

  • 5Rs Jan 15, 9:39 a.m.

    Starglow2005, you have been listening to the lies spread by our Congressmen and media about "greedy CEOs". The vast majority of CEOs are trying to keep their companies alive. Greedy CEOs are a small part of the problem, but Congress in their mad rush to find scapegoats will point the finger in any direction except towards themselves.

  • TheAdmiral Jan 14, 9:12 p.m.

    I know of three people who will be brothers in unemployment from Nortel. I offer those who know who I am a beer with my newly "Application being processed" foodstamps.

    Guess what folks? Something wicked this way comes - and I just hope you are right with your 401K and your savings.

  • starglow2005 Jan 14, 7:46 p.m.

    "It's still somewhat of a stretch to suggest that these companies have some sort of responsibility to keep US workers employed. They have a responsibility to their shareholders to maximize return on the shareholder's equity. If they can better do that by using workers in India than in the US, then they have a responsibility to their shareholders to do so."

    Once upon a time, companies took good care of their workers who in turn believed in the company and worked real hard going the extra mile to build a good product or provide good customer service, which in turn resulted in a successful profitable business.... a win-win for everyone, including the stockholders.

    Today, company executives make poor decisions more focused on short term profits with no regard for employees or the continued long term success of the company. Greedy executive compensation packages and perks have become outrageous when it is the workers sacrificing down in the trenches who make the company successful.

  • clickclackity2 Jan 14, 7:39 p.m.

    True but there are tradeoffs with employee treatment and salaries. Alot of those other countries are clearly corrupt and in some areas the corruption is actually legal and a way of doing business. Blagovich(sp?) must've thought he was in one of those countries.

  • whatelseisnew Jan 14, 6:56 p.m.

    "Alot of these companies have actually been given huge tax cuts and huge incentives" - These cuts are just drops in the bucket. Consider a company that earns billions. It can do business here and pay 30 percent and more in corporate taxes, or it can go to Ireland as an example and pay 15 percent. Our country when stacked against many others is not friendly to business when it comes to tax policies and many other Government regulations that hits profits. Sooner or later Government will wake up; I suspect it will be much later. Businesses that are multi-national are investing elsewhere; not here.

  • 5Rs Jan 14, 6:19 p.m.

    Let's be straight. CONGRESS makes the rules our companies have to live by. CONGRESS enforces expensive requirements on US companies and then enables foreign companies that pay a dollar a day to bring in goods that cost a tenth of what it costs to manufacture in the US. Don't blame US companies for following the dictates of Congress. I personally know companies that only reluctantly moved manufacturing offshore; it was that or go out of business.

  • IMHO05 Jan 14, 5:46 p.m.

    "So why can't the three automakers do the same, i.e., file for bankcruptcy protection instead of holding the hands out?"

    Because the dems are in the pockets of the unions, it wasn't an auto bailout as much as a bailout to pay off the unions.

    Makemyday, you hit the nail right on the head with that statement!

  • f6rider Jan 14, 4:56 p.m.

    bushisaretard: Does Nortel make anything I use?

    Nortel is tied to the telecommunication equipment business and builds telephone switching devices for phone companies. So yes their products are used in providing a service for which you probably subscribe. I'm sure Nortel has diversified over the years, making phones, routers and other possible phone / internet related hardware.

  • f6rider Jan 14, 4:44 p.m.

    DWS: Good for your daughter, she has her priorities straight! All will benefit from that.

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