Nortel Stock Continues To Sink; Is it Time To Go Private?

The stock was down yesterday another 21 cents to $1.66.

While this is bad news for NT investors, you really have to wonder whether stock-watching matters much anymore. As much as Nortel’s fundamentals are far from good, it’s being hammered by volatile capital markets and a wave of negative sentiment. The more people believe that Nortel’s struggling, there’s more uncertainty and less faith in the stock and the company’s prospects.

It’s the perfect storm for the S.S. Nortel, and there’s little Nortel can do except batten down the hatches. focus on doing the right things, and hope it’s still afloat when there are calmer seas again.

I’m as guilty as anyone for pointing out the stock’s decline but this story is getting old.

Should Nortel Go Private?

With its market capitalization sadly shrinking (US$928-million), does it make any sense at all for Nortel to consider going private?

On one hand, it makes no sense because reducing Nortel’s ability to tap capital markets would, in theory, be a bad move. Nortel still needs access to capital even though raising money at this point isn’t exactly ideal - not only because the stock has crumbled but the capital markets aren’t exactly user-friendly these days.

That said, Nortel could sure use a few years to privately lick its wounds and work on revitalizing the company without the scrutiny of investors and the aggravation of having to report its financials.

The current - or new - management team could focus on strategy and making decisions for the long-term as opposed to meeting the short-term expectations of the market.

Of course, it’s highly unlikely Nortel would ever consider going private but at what point would it make sense. I mean, if Nortel’s market cap fell to $500-million, why not use the proceeds of the Metro Ethernet network business sale  - assuming they can sell it - to take out shareholders?

Fred Wilson (aka A VC) has some thoughts on what happens after the markets bottom out. He’s looking for stock buy-backs and “large private equity and buyout firms doing going private transactions with all equity cap structures, and possibly foreign companies seeking bargain acquisitions in the US.

Comments

[User 275879:]

Why would the Metro Ethernet network business sale raise more many than Nortel is worth in stocks? In other words, any company who wants to buy the Metro Ethernet network business, can get the rest of Nortel with it for free

2008 Oct 08 08:45 AM

[NortelVet:]

The major impediment to someone buying the whole company is any debt and obligations that Nortel has incurred will also be purchased. It costs less to just buy the piece parts instead of the corporation.

2008 Oct 08 10:53 AM

[Financial C...:]

Buy the Metro Ethernet Network business for $800M and get the rest of Nortel for free!

2008 Oct 08 11:36 AM