Nortel seeks advice about potential bankruptcy, media agencies report
Wall Street Journal, Bloomberg both say telecom gear-maker is exploring various options. Nortel employs some 2,000 people in RTP.Posted — Updated
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.”
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.