Nortel Networks Corp. (NYSE/Toronto: NT) today confirmed that it will close the Coretek division of its optical components group -- the group it famously acquired for a whopping $1.43 billion at the height of the telecom boom (see Nortel Gambles $1.43 Billion On Tunable Lasers).

Nortel employees learned of the decision last week, on September 19, according to company spokesperson David Chamberlin. Approximately 160 employees are affected, he says. Sources say that most of the layoffs have taken effect immediately, with only a skeleton crew remaining to wind down the facility.

The news shouldn't come as a great surprise, since Nortel already outlined its intention to sell or close down its components activities (see Nortel Falls Short in Long Haul). Chamberlin says the reason that Coretek was singled out for closure was because the market for tunable lasers simply took too long to emerge. "The very advanced tunable lasers and filters produced by Coretek were considered to be very far ahead of market demand," he says.

The timing of the decision is interesting, however. Rumors were circulating that Nortel was close to concluding a deal last week to sell all or part of its components division (see Nortel Close to Components Sale ). One possible interpretation of events is that the deal was done but the buyer didn't want the Coretek group. Nortel, naturally, declined to comment.

Further rumors are emerging that Coretek's management had made a bid to buy out the group, but failed. According to an ex-Coretek employee, the buyout contingent was led by Coretek founder and former CEO Parviz Tayebati, who left Nortel earlier this year, along with some of the current management team, Scott Burroughs and Tom Dudley.

Reportedly, Tayebati backed out of the deal at the last minute. Nortel wasn't impressed by the offer being put forward, says the source, who believes that the company was holding out for a better deal. Burroughs and Dudley may still be trying to strike a deal with Nortel to get the intellectual property rights, he adds.

The Coretek collapse shows how fast the "paper value" of a stock deal can change. The original purchase was an all-stock deal, at a time when Nortel was trading at around $119 a share, according to press releases issued at the time. Today Nortel trades at under a dollar. Taking into consideration the difference in stock price, the value of the shares used in the acquisition now comes out to just over $6.4 million.

— Pauline Rigby, Senior Editor, Light Reading
www.lightreading.com