News surfaced last night that John Roth, ex-CEO of Nortel Networks Corp. (NYSE/Toronto: NT), has sold a huge chunk of the remainder of his stock options in the company.
According to reports from Reuters, Roth sold 751,245 shares for a little less than US$1 apiece, generating about $738,000 at the start of August 2002. The filing was sent to the Ontario Securities Commission last week, according to Reuters, though Light Reading was unable to confirm. No corresponding filings have appeared in the online logs of the U.S. Securities and Exchange Commission (SEC), although they will eventually materialize there, since Nortel trades on the New York Stock Exchange as well as Toronto's.
Roth's entire stake in Nortel as of February 29, 2002, was 6,402,846 shares, according to SEC filings. But most of those shares are unexercised options that Roth still has time to act upon, and sources say the amount he cashed in last month probably represents the total of shares he actually owned, as opposed to ones that are "under water" at unknown strike prices.
Nortel's not commenting on the sale, saying Roth no longer has a role with the company. But the news was greeted with disdain in several quarters, since it appeared to signal a loss of faith by a key former insider.
"It's just one more sad statement in a long line of sad happenings at Nortel," says Timm Bechter, VP and broadband equipment analyst at Legg Mason Inc. In Bechter's opinion, Nortel shares will be worth at least $4 to $5 if the company can return to profitability.
Like most analysts, Bechtel isn't sure why Roth sold his shares. Some have speculated in the press that he was attempting to avoid tax liability by selling now. "No one person -- especially Roth -- has any great insight into where this
thing is going," says one analyst, who asked to remain anonymous. "I'm sure there is a host of personal/tax/diversification
reasons why he did it."
Whatever his motivation, the news appears to say as much about Roth himself as about the economic uncertainty Nortel faces.
Despite his company's ongoing struggles, including enormous layoffs and losses, Roth walked away in May 2001 with a raise in pay that brought him more than US$1.4 million in salary and bonuses for a year during which he was absent from Nortel for more than six months (see Nortel's Roth Rakes It In).
Indeed, while Roth sucked up the cash in 2001, Frank Dunn, the new CEO, was paid $564,833 in salary along with 1,750,000 options, with no bonus. Dunn was the highest-paid active executive at Nortel last year.
Meantime, the company continues to struggle and recently warned of an even greater revenue shortfall this quarter than initially expected (see Nortel's Bottom Sags). Nortel has cut over 55 percent of its staff since January 2001 and plans to cut more. In contrast with Roth's contract, Nortel's typical severance package includes 60 days notice plus four weeks of pay and an additional week of pay per year of service (see Got Severance? Count Your Blessings).
As the company teeters and totters, other top execs have chosen not to wash their hands of Nortel. Surprisingly, several top managers, including CEO Frank Dunn, CTO Greg Mumford, and division presidents Frank Plastina and Brian McFadden, as well as an array of Nortel directors, have all bought substantial shares in the company recently.
Since the start of June 2002, insiders have purchased more than 2 million shares of Nortel stock in ordinary and private buys, according to several online sources, including Quicken.com.
As ever, it may be perilous to read too much into these insider dealings. At the same time, it may be misguided to read too much into Roth's as well, given his apparent disconnect from the company he once led.
BRAMPTON, Ont.- Nortel Networks* [NYSE/TSE: NT] announced an agreement to acquire CoreTek, a pioneer in strategic optical components, for up to US$1.43 billion in Nortel Networks common shares on a fully diluted basis ... CoreTek's capabilities are an important building block in our vision to transform today's Internet into the all-optical Internet of tomorrow," said Clarence Chandran, president, Service Provider and Carrier Group, Nortel Networks. ... "We will continue to move at Web-speed and employ a mix of alliances, acquisitions, and R&D to answer the ever-growing bandwidth demands of our customers while at the same time exponentially driving down the cost of delivering services and driving up profitability," Chandran added. ... CoreTek, a privately-held company with 120 employees ... It expects to begin shipping its next-generation components in the fourth quarter of this year. ...
Pfeffer was the AVP for AccessNode in 1989-1992. His carreer took off after that as he took on various executive position for Northern Telecom, until NT and BNR merged in late 1996.
I think I have a vague memory of the name Pfeffer but absolutely no recollection of Roth before he became president of BNR.
What did they have to do with digital switching. THis was the purview of Colin Beaumont, George Smyth etc. What did Roth have to do with the take off of digital switching. It must have been soemthing. However I can recall the Iona Street DMS 100 fiasco. When the switch was set up at Meriline Court to see if it would actually function for longer than a few minutes, every BNR and Northern big shot avaioable came arund to see it. If it hadn't worked that probabably would have been the end of BNR and Northern. I do not recall Roth being anywhere near that machine and I was there most of the time.
I think I have a vague memory of the name Pfeffer but absolutely no recollection of Roth before he became president of BNR.
What did they have to do with digital switching. THis was the purview of Colin Beaumont, George Smyth etc. What did Roth have to do with the take off of digital switching. It must have been soemthing. However I can recall the Iona Street DMS 100 fiasco. When the switch was set up at Meriline Court to see if it would actually function for longer than a few minutes, every BNR and Northern big shot avaioable came arund to see it. If it hadn't worked that probabably would have been the end of BNR and Northern. I do not recall Roth being anywhere near that machine and I was there most of the time.
"Just bring back Paul Stern!! That's DR. Stern to you!!! How many more folks would he lay off to pay his bodyguards???"
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Ironically, the situation at NT has not been this bad since the reign of the alleged doctor.
I remember a quote from an RBOC exec who was in a meeting with Stern's righthand hatchet-man, Ed (Neutron Eddie) Lucente. The exec said: "I wish you were as concerned about my numbers, as you are about yours."
That was the kind of customer feedback that doomed the Stern regime. At that time, there were customer relationships that went to the board level. It was not long before Monty took over. Stern was driven by his own self-importance and ego to ruin most of the customer relationships. If you look not-so-deeply into the current situation, a lot of this is frighteningly familiar. JR didn't seem to lose touch with reality until he started seeing his name in lights. It's a shame, because a home-grown Norty with his intelligence wasted the opportunity of a lifetime to be a great leader, over his own self-importance. If that sounds like "bashing", I apologize. It's not intended as an insult to him, only a sad commentary and the disappointment felt by those who expected greater things.
PS: Lucente got his knickname because of his likeness to the Neutron Bomb. Whenever he dropped in, the facilities were left standing, but all the people died!
"After his tenure was over as President of BNR ~ 1979, Roth became the GURU (sic)of wireless @ Northern Telecom and kept a low profile during Stern years until Monty took over in the mid-90s."
Yes, this sounds about right. I had no visibility to Roth during the 80's. I first heard his name associated with wireless.
The whole "fast tracker" issue was curious. I recall being in training in Nashville in the 80's with a number of fast trackers. They were young, inexperienced, and boastful of their status as fast trackers, impressing me as rather arrogant. AFAIK, all of the fast trackers I attended training with are still with NT in executive positions.
Do you know about the clique consisting of JR and Rob Pfeffer et al? Those who (I heard) were spending their week-ends at Carling and expected their MSS to do so. Consequently when the digital switch took off, the clique was promoted including the fast trackers ( this has been going on for a while) and the BSers from Bell Canada. Then the exodus started with the emergence of Mitel. After his tenure was over as President of BNR ~ 1979, Roth became the GURU (sic)of wireless @ Northern Telecom and kept a low profile during Stern years until Monty took over in the mid-90s.
Roth was apparently hired as a design engineer by BNR in 1969. I was hired by BNR in the very early 70s but never heard of him. He was probably on the fast track even when I was hired so perhaps he was working at a level far above me.
Does anyone know what Roth did at BNR and when he left? I find it really surprising that I was not aware of his existence until he became president of BNR.
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