Selling Nortel's MEN

The key to figuring out who/what ends up buying Nortel MEN lies with the carriers. MEN's crown jewel is the 40/100 system. Who are and will be the biggest buyers of this stuff? Those guys pre-approve the buyer. Are they comfortable with Huawei? Hell no. They are out. Same with Sycamore. Out. Private equity? Maybe, but a long shot. Depends on who ends up running the thing and how much debt they carry. That leaves any of the other big OEMs very much in the picture. Who is missing 40/100 transport and who is AT&T/Verizon okay with? Really, the only way to maximize sales here is to sell the thing to a blue chip OEM.

I thought you wanted Nortel to go to a real company?

I think that it can not be more than the wireless assets went for, probably less.  In all honesty, I think Sycamore will be completely destroyed by this and it would be a really bad idea for them to buy MEN.

The basic issue is that the Tier 1 carriers have a set of expectations around service, support, project managment, and operations.  Sycamore is basically a shell at the moment and you can not just create them or manage them out of thin air.

From a customer standpoint, you would want one of the existing Tier 1 vendors to pick up the asset.

seven

Yeah, I know companies that work like that. (Hi, boss!)

Okay, let's get to the real issue here: How much do you think Sycamore will pay for Nortel's MEN group? Huh? How much?

:)

ph

Private equity basically runs on cash flow.  They take distressed assets and take cash out of them more than they bought them for.  So, if they think they can cut enough people to get the business to good profitability and ride it out then that would work.  Not going to be a group that builds a company back up.

seven

How strong a possibility is the private equity option? Seems like it would be an interesting deal if Nortel sold the asset to a group of investors, then paid debt holders with the proceeds. I think that would leave the MEN group to run as an independent company, with no Nortel baggage. 

Whaddya think?

Thanks for the assist Stevery!

Phil,

The basic problem is that you can not clean a balance sheet by whim.  The debtholders own the company.  As Stevery says you could give them a slice of the pie.  Alternately, you can sell the asset for money and give that to the debtholders.  But what you can't do is take an asset out of the firm and give the debtholders no compensation.

So, Nortel is off selling the assets in a way to garner the debtholders as much money as possible.  If the debtholders wanted to own stock in an MEN group, that would work but would have to be convinced that they are better served getting a stock that can appreciate other than cash. 

seven

Totally agree about the debt. If the new company is simply a privately held vehicle to hide a bad balance sheet, customers won't stick around.

But something must be done soon so that potential customers won't be put off by all the months of uncertainty. Unfortunately, that's quite a challenge since Nortel is juggling negotiations with so many different businesses all at once. 

Quite a mess, that Nortel.

ph

It's not fraudulent conveyance if you give share ownership to the outstanding debtors, which the court would certainly do if it were US.  (I assume canucks do something similar.)

The bigger question is whether there is a profitable business in there, or whether the leadership / market position is permanently damaged.  That would depend on how the newco was structured.  (If they tried to push a wad of debt into it, then customers should run away screaming.)

is that a shot at nortel's transport gear? or my so-called hat?