Analysts: Moto Won't Stop Zafirovski

Motorola Inc. (NYSE: MOT) probably won't be successful in preventing its former president and COO, Mike Zafirovski, from taking the reins at Nortel Networks Ltd. (NYSE/Toronto: NT), according to Wall Street analysts watching the case. Rather, they suspect that Motorola is mainly going after Zafirovski as a way to prevent further poaching over the coming months.

And it appears Motorola is also seeking to make it financially easier to part ways with Zafirovski, who stands to get more than $16 million from his former employer as part of his separation agreement.

Nortel announced a week ago that it had hired Zafirovski to become its CEO on November 15. One day later, Motorola sued Zafirovski. The lawsuit, according to sources who have seen the court papers, seeks to keep Zafirovski from working at Nortel for two years, and it asks the court to disallow him from soliciting or hiring Motorola employees. (See Nortel Names Zafirovski New CEO and Nortel Discloses Lawsuit Against CEO.)

The suit also says that by working at Nortel, Zafirovski is sure to disclose Motorola's confidential information, giving Nortel a competitive advantage. Finally, it seeks $11 million from Zafirovski in damages.

"We believe this dispute boils down to Motorola wanting to prevent Nortel and Zafirovski from recruiting MOT executives," writes J.P. Morgan Chase & Co. analyst Ehud Gelblum. "We expect Zafirovski should eventually be able to take the CEO job at Nortel, but anticipate that somewhat stringent limitations could be set restricting Nortel’s ability to hire Motorola’s executives as Zafirovski forms his new management team."

Nortel itself had nothing to say when Light Reading phoned the company this morning. "The parties are still in discussions to attempt to resolve the matter," a Nortel spokesman says.

Gelblum expects that Nortel will have to make a nominal payment to Motorola, maybe even taking on some of Zafirovski’s separation settlement payments, as a way to compensate them for the loss of his services.

He writes that a similar situation occurred when Sprint Corp. (NYSE: FON) CEO, Gary Forsee, left BellSouth Corp. (NYSE: BLS) to run Sprint. (See Sprint Faces Management Muddle, Judge Clears Forsee for Sprint, and BellSouth's View of Foresee Flap.)

According to its SEC filings, Motorola agreed to pay Zafirovski a lump sum payment of $16,839,290 as a separation allowance, should he ever leave the company. That gargantuan pile of cash is meant to "replace the supplemental retirement benefits Mr. Zafirovski had accrued with his former employer and forfeited to join Motorola," the company's SEC filings state.

When he starts at Nortel, Zafirovski has agreed to take an annual base salary of $1.2 million, and his bonus will be anywhere from 150 percent of his base salary to 300 percent of his base salary, depending on how well he performs.

— Phil Harvey, News Editor, Light Reading

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