Nortel Looking at 3 Serious Bids for Metro Ethernet Business

According to the Globe & Mail, Nortel (NT) is looking at three “serious” bids for its metro Ethernet network business, and that it’s looking at selling more assets rather than go into bankruptcy protection.

Analysts suggest the potential buyers include Cisco (CSCO), Huawei (which plans to open a small office in Kanata, Ontario), Nokia Siemens (NOK, SI). Originally, analysts expects MEN would fetch $1-billion to $2-billion but the decline in financial markets means it will be much less than that.

The G&M reported Nortel may be exploring the sale of its carrier networks business; a move that would mean its business would be reduced to selling networking equipment to enterprise and government customers.

What do you think about this strategic approach? Does it make sense?

Comments

[longoil:]

An interesting theory, but not all of the three are serious buyers.

1) Cisco has a metro ethernet product line and a well eatblished established global customer base. They typically acquire small nimble startups, not bloated behomouths like Nortel where integration into the Cisco culture would be impossible.

2) Huawei also has a metro ethernet product line. There is remote possibility that they would buy the Nortel MEN division for the North American customer base.

3) Siemens also has a metro ethernet product line and an established European customer base. As with Huawei, there is a remote possibility they would want Nortel MEN for its North America customer base.

Someone has to explain to me why Nortel thinks they will get 1 to 2 billion dollars for one division, when the total market capitalization for all of Nortel is currently $135 million. Factor in outstanding debt and pension liability and the entire company has an enterprise value in the negative billions. The zero stock price makes a lot of sense.

2008 Dec 17 05:38 PM

[stockfan:]

I'm not sure why they would be wanting to only keep the portion of their business that puts them in direct competition with Cisco. They need an exit strategy from the Enterprise IMHO.

2008 Dec 17 06:13 PM

[DJK:]

There are essentially 4 main business divisions at Nortel; Enterprise, Optical, Wireless, and Wireline. Since the days of Roth, Enterprise was always the ugly, redheaded step child. Nortel identified itself with the other divisions because those businesses reflected the company's origin (Carrier).

But even in neglect, Enterprise has always been a break even to slightly profitable division for Nortel. All the other divisions have been loss centers since the Internet bust in '01 (especially Wireline). The lure and promise of "billion dollar deals" was just to enticing for Nortel to ignore. So Nortel continuously pumped money into these losing endeavors in the hopes for the "big pay-off."

But Nortel needs money now. They can't afford to wait for the big pay-off. The Enterprise market overall is a larger market with a much more diverse customer base. So it's more stable and the margins are far better. Which is exactly what Nortel needs right now.

Now the interesting part will be if the Enterprise division proves successful now Nortel will focus on it. Or will that cause it to start failing too.

2008 Dec 17 09:09 PM

[DAO:]

I think Nortel see's real value and growth in the enterprise end of the business. They have an excellent established customer base and good products to sell. Seems they are #1 in Unified Comunications according to review's have read. They also seem to be teaming up with all the right partners "Microsoft, IBM " I think that people forget that Nortel also has 2.65 Bil. in cash with no debt due until 2011. I guess we will see where they go from here......

2008 Dec 17 10:24 PM

[JRZ:]

I see from most comments here that most people have not a clue of the "origins" of Nortel, nor it's product structure or value added services. Glad these people do not manage my wealth or any part of my portfolio, but this narrow minded thinking about money and selfishness is why we are all here today, with the auto sector, banking system.....maybe pompus investors need to look inwards to determine the true meaning of ethical governance, by seeing true corruption for what it is.

2008 Dec 18 08:51 AM

[JRZ:]

Maybe because it's the only entity that continuously generates revenue, and that customers have always counted on to come through good times and bad. Reality is that carrier boom days were when governments subsidized telco's to bring the internet era to life.....now that subscribers are expected to pay for a much needed backbone overhaul the competition runs for the hills while Nortel offers a short term solution 40G.


On Dec 17 06:13 PM stockfan wrote:

> I'm not sure why they would be wanting to only keep the portion of
> their business that puts them in direct competition with Cisco. They
> need an exit strategy from the Enterprise IMHO.

2008 Dec 18 08:57 AM

[NetworkBob:]

Well for $200 M or even $1B it would make perfect sense for Cisco to buy them and eliminate half of their competition in those markets. It would be one of the cheaper Titanic deals ever done in Telecom and the ROI for Cisco would be under 6 months at these prices.

2008 Dec 18 07:32 PM