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Mergers & acquisitions

Nortel Close to Components Sale

Rumors have been rife this week about the potential sale of Nortel Networks Corp.'s (NYSE/Toronto: NT) High-Performance Optical Components (HPOCs) division. According to sources close to the deal, Nortel will close the sale within a week for a sum of US$50 million.

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
www.lightreading.com
fanfare 12/4/2012 | 9:46:34 PM
re: Nortel Close to Components Sale Ok, sorry, I didn't really read the article. HPOC for $50 mil. But .. still
fanfare 12/4/2012 | 9:46:34 PM
re: Nortel Close to Components Sale Refresh my memory on here?

NT was in the process of selling this division about 3-4 yrs ago to, I believe GLW (or was it JDSU?). Anyway, Roth backed out because the deal would not allow him to maintain control over the division after it was sold (at least that was what HE said at the time). As in "I'll sell you my house as long as I can still live in it". What a unique concept that was. Well, I understand that was the deal breaker, but who can say for certain. I seem to remember the price tag was staggering. Does anyone remember the number?

And we all thought Roth was brilliant. I guess we had that confused with arrogance.

I guess 100 billion dollars just wasn't a lot of $$ back then. Ah, the good old days.



rjmcmahon 12/4/2012 | 9:46:33 PM
re: Nortel Close to Components Sale And we all thought Roth was brilliant. I guess we had that confused with arrogance.
________________

Confusing arrogance for brilliance seems to occur fairly often though neither trait really matters much in the long run.

Worshipping CEOs, regardless of their brilliance or their arrogance, will never lead us to truth or knowledge. We will need to look to each other for those.
light4me 12/4/2012 | 9:46:32 PM
re: Nortel Close to Components Sale NT was in the process of selling this division about 3-4 yrs ago to, I believe GLW (or was it JDSU?). Anyway, Roth backed out because the deal would not allow him to maintain control over the division after it was sold (at least that was what HE said at the time). As in "I'll sell you my house as long as I can still live in it". What a unique concept that was. Well, I understand that was the deal breaker, but who can say for certain.
---------------------------------
Apparently the deal broke down because Nortel could have owned more then 50% of Corning, which would have been unacceptable to many.

LegoAss 12/4/2012 | 9:46:31 PM
re: Nortel Close to Components Sale ... the amount of the sale is IRRELEVANT compared to the amount of the savings on expenses that Nortel will achieve (i.e. thousands of less employees and sevarance packages)... Nortel - good financial move.

Components are now commodities anyway. Want a 10G transceiver with that Big Mac? Would you like to SuperSize that DCM?
whyiswhy 12/4/2012 | 9:46:23 PM
re: Nortel Close to Components Sale Come on! Bookham spending almost half their cash to buy NT while they are bleeding? The sale price is irrelevant compared to the bleed the HPOC group has: $100-150M per year.

One can presume NT has already tried to downsize the group, so the burn is about as low as it can go without snuffing out. So the cost of NT will be about $150-200M net, at least. The only way Bookham can afford HPOC is to take the IP, and let all the NT people (and facilities) go.

The other speculated buyers have enough cash to cover the losses while they fix things. Not Bookham.

Then again, stupid acquisitions have been the rule (not the exception) in fiber optics.

-Whyiswhy
light4me 12/4/2012 | 9:46:22 PM
re: Nortel Close to Components Sale Bookham financials: $10M revenues / quarter, $20M cash burn /quarter. Yet, they are claiming that they want to become THE leading component suppliers. They might only be able to achieve it by acquisition, like they did with Marconi's components. Does anybody know what they could get for their $50M in terms of revenues, assets,.....?
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