Nortel News: M&A Speculation, Dueling Analyst Ratings

M&A Speculation

So is Nortel (NT) really serious about making an acquisition? Tech Confidential Blog is wondering what’s up given that Nortel had not consummated a deal since it bought Tasman Networks in December 2005.

It appears Nortel is interested but being super selective. TCB cited a conference call earlier this week hosted by CIBC Oppenheimer in which Steve Slattery, Nortel’s enterprise president, rejected the idea Nortel was just talking the talk.

“I can tell you that our M&A folks have been working feverishly for 18 months looking at a variety of opportunities,” he said. “We are constantly evaluating opportunities,” he said. “But we are not going to overpay for an asset. It has to be accretive.”

It may be that Nortel just can’t find something it really likes at the right price. And despite Nortel’s apparent interest in Avaya (AV) my sense is Nortel is probably more interested in smaller, more strategic acquisitions that have less integration and corporate culture issues to tackle.

Tellabs Up For Grabs

If speculation is any indication, Tellabs (TLAB) is the belle of the telecom equipment ball these days amid reports Nortel and Nokia (NOK) could be interested in acquiring it. However, UBS analyst Nikos Theodosopoulos said Nokia and Nortel both had weak second-quarter results, which could delay any deal-making in the short-term.

Following a weak 2Q, NSN is likely to focus on integrating the two companies rather than large M&A,” he said in a research report. “NT also had a weak 2Q, resulting in a sagging stock price, while a weak credit environment would make a debt offering for M&A much more expensive for NT.

According to Light Reading, Theodosopoulos dropped his price target for Tellabs from $14 to $11.50, due to the lower probability that the company will be bought in the short term. Nokia apparently offered $16 to $17 a share for Tellabs in July while Nortel was reportedly willing to offer $14 to $15.

Dueling Analyst Ratings

It’s interesting to see analysts have dramatically different views on the prospects for a company’s stock.

Last week, UBS analyst Nikos Theodosopoulos published a report that questioned why investors were under-valuing Nortel - a stock he believes is worth $34. It’s certainly a bullish approach at a time when Nortel shares have been declining, and investors have had to digest disappointing news (lower sales in 2007 due to fewer than anticipated orders in North America) from Lucent-Alcatel (ALU) recently.

In contrast to Theodosopoulos’ optimism, Credit Suisse analyst Paul Silverstein has decided to maintain his “underperform” rating on Nortel while reducing his earning estimates and his 12-month stock price target to $16 from $17.

In a research note, Silverstein said Nortel continues to suffer from high exposure to the legacy product markets (aka older technology) amid challenging carrier capex growth and pricing environments. He suggests the outlook for Nortel’s revenues in Q3 and Q4 is trending lower than the guidance due to the ongoing weakness in CDMA wireless sales.