Nortel Sells Plants, Supplies Update
Nortel Networks Ltd. (NYSE/Toronto: NT) hit the street running today, announcing the proposed sale of its remaining manufacturing operations to Flextronics Corp. (Nasdaq: FLEX) and saying that its updated financial refiling should be available in July (see Nortel Sells Plants to Flextronics and Nortel Provides Financial Update).
The agreement with Flextronics, which will net Nortel between $675 million and $725 million in cash, was widely expected since the beginning of the year (see Nortel Talks Outsourcing).
The deal with the contract manufacturer means Nortel won't be making any of its own products any more, a move it expects will save it up to $100 million a year after four years. Nortel's four-year manufacturing deal with Flextronics is worth $2.5 billion a year, and it will also enter a three-year product design services deal. About 2,500 Nortel employees are set to be transferred to the new owner.
The deal will include product integration, testing, and repair operations in Canada and Brazil, while Flextronics has also offered to buy Nortel's plants in France and Northern Ireland. The deal also includes some hardware and embedded software design assets in Canada and Northern Ireland, as well as Nortel's global repair services business.
Nortel will receive cash payments starting in the fourth quarter of 2004, subject to approval of the sale. The Canadian firm expects to incur sale costs of $200 million but to see a positive impact of $75 million to $100 million a year on net earnings after four years.
Meanwhile, Nortel investors are anxious for the company to get through its messy financial refiling, which has depressed its share price and resulted in board-level job losses (see Dunn's Done With Nortel , Nortel Gets Federal Subpoena, and Nortel Rattles Nerves).
Now the company is hinting that it sees the light at the end of the tunnel. While its previous updates have been non-committal (see Nortel Leaves All Doors Open), today's update on the refiling process and its impact on 2004 financial reporting provides a timetable of sorts. The highlights are:
- Nortel expects to provide "updated assessments of the expected impacts of the restatements" on its financial statements from 2003, 2002, 2001, and the first quarter of 2004, in mid to late July. So, in about three to five weeks' time.
- Preliminary unaudited results for the first and second quarters of 2004 are due to be released by mid August.
- During the third quarter of 2004, Nortel expects to file financial statements for 2003 and the first two quarters of 2004, and then file any remaining amendments to any prior periods after that "as soon as practicable." This means Nortel will miss the August 2004 deadline for filing its report on the second quarter of 2004, so it will file a late filing report for that quarter with the Securities and Exchange Commission (SEC).
— Ray Le Maistre, International Editor, Boardwatch