Nortel Close to Components Sale
The suggested price tag is a bit of shocker, considering that the components group includes the former Coretek, a startup Nortel bought back in the boom days of telecom for a whopping $1.43 billion (see Nortel Gambles $1.43 Billion On Tunable Lasers).
But analysts says it makes more sense for Nortel to sell the group, even at a rock-bottom price, than to close it down. Closing it down is an expensive option -- providing severance packages to the remaining employees would probably cost considerably more than the suggested sale price of the unit.
"The dollar amount sounds good, cause I heard they were looking for over $100 million just a month ago," comments CIBC World Markets financial analyst Jim Jungjohann.
Nortel declined to comment for this story, citing its usual policy of not commenting on rumors or speculation. It also declined to reveal how many employees are in the HPOCs division at the present time. In light of the restructuring that's already taken place, that number is likely to be considerably lower than the 6,000 employees the division started out with.
So who is the likely purchaser? Light Reading previously reported that Bookham Technology plc (Nasdaq: BKHM; London: BHM) and Sumitomo Corp. had both placed bids to acquire Nortel's beleaguered components group, but that the process seemed to have stalled (see Opto Units: Red Tag Sale.
Since then, it appears that a third bidder has come forward to restart the process. Finisar Corp. (Nasdaq: FNSR) has reportedly been seen over at Nortel doing due diligence, says a source from a competing vendor.
While the successful bidder is not known, Bookham remains firm favorite out of the three contenders. Geographically it makes sense. A significant portion of Nortel's components business is based in the U.K., at Harlow and Paignton -- close to Bookham's own U.K. headquarters at Milton. Finisar and Sumitomo, which have no existing operations in the U.K. would incur considerably more expense and difficulty in integrating these Nortel units into their companies.
Although it has been forced to scale down its own operations this year, Bookham has a strong cash position, holding £148.9 million ($227.8 million) in cash, according to its quarterly report for July 30, 2002 (see Bookham Reports Q2, Preps Layoffs). And Bookham clearly has an eye for a bargain. In December 2001 it bought the components division of Marconi plc (Nasdaq/London: MONI) for stock worth a mere $29 million.
When Bookham bought Marconi components, it got a guaranteed sales contract with the parent company over two years. Some say that if the deal with Nortel comes at a bargain-basement price, with a guaranteed sales channel, then it might be worth the trouble. However, set against that is the fact that anyone locking themselves into being Nortel's supplier would be taking a considerable risk, in view of the company's mounting losses.
"Bookham was looking very smug," notes one visitor to European Conference on Optical Communications (ECOC) this week, who did not wish to be named. Bookham declined to comment on the sale of the Nortel business.
— Pauline Rigby, Senior Editor, Light Reading