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Financial

Nortel Set to Raise $1.3B

Nortel Networks Corp. (NYSE/Toronto: NT) has done better than expected and expects to raise US$1.3B from an offering of equity and common shares this week (see Nortel Offers Shares and Nortel to Raise $1.3B).

Analysts say the sale will raise enough cash to beat back the wolf at the door, but it's come at a price -- serious dilution of Nortel stock. And the new capital is no guarantee that the firm is safe and sound from the telecom depression.

"They needed a very dilutive equity offering to gain liquidity," says Steve Levy of Lehman Brothers. "They've done better than they expected that way. They've eliminated one of our key concerns. But it's been very dilutive."

Levy still hadn't finalized his figures at press time, but one Canadian equity analyst, who asked to remain unnamed, estimates the value of Nortel shares could be diluted by over 30 percent as a result of the transactions.

Nortel has been desperately in need of a cash infusion in order to stay fully funded and within the limits of its credit covenants. The company originally expected to raise $800 million, but analysts say short-selling fund managers, who expect to make a profit by selling shares at greater prices than they'll eventually buy them back for, glommed onto the offering in anticipation that Nortel's stock price will dwindle over time. The result was a better-than-expected showing for the ailing equipment vendor.

Nortel is expected to gain $776 million from the sale of 550 shares of common stock and another $714 million from 25,000 so-called equity units, which can be converted to common shares worth $1.69 apiece within three years. Once charges are taken out, net aggregate proceeds are expected to be $1.3 billion.

The shares were priced yesterday at $1.41 and the equity units at $28,571 apiece.

Nortel's also arranged for an extra "greenshoe option," by which the underwriters can buy another 82.5 million common shares and 3,750 more equity units, if demand is sufficient. Nortel's greenshoe option could add another $200 million to its take.

If the option is filled, the Canadian equity analyst cited earlier estimates that Nortel will have issued 1.2 billion new shares. These will be added to the 3.4 billion fully diluted shares it had at the end of the first quarter of this year. When all calculations are done, the number of Nortel's shares will swell to nearly 4.6 billion, diluting the value of the stock by 34 percent, he maintains.

Bottom line? Nortel's in the clear for now, but the company must improve its revenues and overall financial health before it can be said to have reversed its downward spiral.

"We think the company's funded through the end of 2004, but it's not going to be cash flow positive until after that," predicts the Canadian analyst. He says the company's performance in 2003, particularly in its wireless business, could help turn the tide -- or challenge Nortel even more.

At press time, Nortel shares were trading at $1.51, up $0.10 (7.09%).

— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com
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zweisel 12/4/2012 | 10:17:43 PM
re: Nortel Set to Raise $1.3B good for you nortel. use the available liquidity options at your disposal to weather this telecom nightmare and fend off the naysayers. however, you will still have to start showing positive cash flow or growth to survive the wolves.
OptixCal 12/4/2012 | 10:17:39 PM
re: Nortel Set to Raise $1.3B The dilution of Nortel stock by the addition of a new IPO (Idiot Provision Ordinance) is a travesty. I don't care what kind of name is put on this, this is a sad and expensive statement to poor management and nepotism.
BobbyMax 12/4/2012 | 10:17:34 PM
re: Nortel Set to Raise $1.3B Nortel is a mismanaged company, It has plundered its wealth by granting huge stock options to its management. Its former CEO was a very incompetent person and there are serious questions about the competency of its current CEO.

Canadian companies, in general, have been very honest and socially and morally responsible. As soon as Nortel started to follow the American way of governance which is largely corrupt, the company went down the tube.

Investors should not invest in a company that has such terrible record of internal corruption and incompetence.

Nortel's workforce swelled like mushroom and they had largely incompetent managers and egineers.

Nortel lost a lot of money in acqquiring three companies in California (Alteon, Bay Networks, forgetting the name of third one). These companies were largely trashy and Nortel failed to do due diligence on these companies.
Belzebutt 12/4/2012 | 10:17:32 PM
re: Nortel Set to Raise $1.3B Nortel is a mismanaged company, It has plundered its wealth by granting huge stock options to its management. Its former CEO was a very incompetent person and there are serious questions about the competency of its current CEO.

Canadian companies, in general, have been very honest and socially and morally responsible. As soon as Nortel started to follow the American way of governance which is largely corrupt, the company went down the tube.

Investors should not invest in a company that has such terrible record of internal corruption and incompetence.

Nortel's workforce swelled like mushroom and they had largely incompetent managers and egineers.

Nortel lost a lot of money in acqquiring three companies in California (Alteon, Bay Networks, forgetting the name of third one). These companies were largely trashy and Nortel failed to do due diligence on these companies.


I think the above is mostly true, and I work there.

The vast majority of the excess people have been laid off by now, and I'm hopefully that the execs will start being accountable. The shareholders and employees are demanding it, and it looks to me like the execs got the message.

Cross your fingers.
gea 12/4/2012 | 10:17:32 PM
re: Nortel Set to Raise $1.3B Crap!
With Harvey Mudd aka Bobby Max saying (by accident...he says the same thing about every company besides Lucent) that Nortel is run by incompetants, I am very tempted to change my own point of view...maybe Nortel's management is incredibly brilliant, and they just got caught short by the downturn...I never would have believed this until I heard Harvey saying exactly th opposite (he is normally dead wrong about the stuff he babbles).

Oh yeah... don't forget the acquisition of XRos...I understand a company such as Nortel panicking and buying an optical switch company back in that environment (we all thought giant MPLS pipes plus wavelengths was going to happen fast), but for them to spend THAT much money on a company with no customers, and a switch that was not fully tested, well...maybe there was something going on behind the scenes with that deal (ie, did Nortel execs gets lots of XRos stock options or something?)
Litewave 12/4/2012 | 10:17:31 PM
re: Nortel Set to Raise $1.3B Nortel's in the clear for now, but the company must improve its revenues and overall financial health before it can be said to have reversed its downward spiral.


Unfortunately, in a perverse way, Nortel's at even greater as this cash gives them a false sense of security, and much of the stupidity that goes on will continue.


Author: Belzebutt
The vast majority of the excess people have been laid off by now, and I'm hopefully that the execs will start being accountable.


Yea, the same execs who have executive assistants who have assistants of their own! Lots of expats who are paid large amounts with little experience and even less contribution, just email/paper shufflers. Execs who are paid large amounts every month with large teams, but are not accountable for any revenues. Lots of people who continue to be paid but have virtually nothing to do so they create the illusion that they're busy...

Its all still going on at Nortel. This cash infusion is going to perpetuate the problems.
dljvjbsl 12/4/2012 | 10:17:29 PM
re: Nortel Set to Raise $1.3B
Yea, the same execs who have executive assistants who have assistants of their own! Lots of expats who are paid large amounts with little experience and even less contribution, just email/paper shufflers. Execs who are paid large amounts every month with large teams, but are not accountable for any revenues. Lots of people who continue to be paid but have virtually nothing to do so they create the illusion that they're busy...


Large numbers of excess staff may be bad for Nortel but what is much much worse is the attitude evinced by this message. Internal suspicion and dissension are evidence that the internal trust needed for a company to flourish have been destroyed. Back biting and recriminations are not going to win any customer contracts. Indeed, if I was a customer who was wondering whether or not that Nortel was going to survive as a stable enough company to be provided with a significant contract, I would be looking to see if just this sort of attitude existed within it. I would immediately remove Nortel from consideration, if I found it.

This is entirely analogous to the infamous Paul Stern meeting with Bell South. Please Sir, we are a large dysfunctional company which is internally unstable. All it would take to solve our problems is your money.
microfab 12/4/2012 | 10:17:29 PM
re: Nortel Set to Raise $1.3B All of the criticism of Nortel has merit, yet Dunn has some decent understanding of reality. The funding effort was Absolutely Needed. No If Ands or Buts.

But how it is used, and how the company proceeds from here will determine if they are still dreaming or have remnants of delusions of a never return to market growth. The party is Over, and business discipline and management is Important. The Cash was a prerogative to survival, that will in end be determined by discipline in spending and by implication that development expeditures being focussed and ( cost/ revenue ) Effective.

His next step in the coming months if he is to be on the ball is to quickly bring Nortel's employment level back in the 30's ( mid 30's will likely suffice ). Let's hope he does it so the compny survives.

The burn rate needs to be brought to a level so that the debts can be begun to be paid down - through positive cash flow on expectations of NO Upturn. Enough with wishing for that which will not be - there will be no Internet Hockey Stick Growth Phase II for the foreseeable future of 5-10 years.

Get with reality - telecom has always, prior to the Net Irrational Exhuberance - a cyclical modest margin business where most of the margins come from early new product technology that is successful. Very risky to wait for an unwilling suitor (customer) in the present reality of markets. So the Winning Strategy for now Has To Be Cash Flow is King !

The only thing that worries me that they might not yet get it, is the recent pronouncement that Product Development must not be impeded. True to some limited extent, if there are markets that warrant the efforts and cash expenditures.

Let's hope for the best .....
dljvjbsl 12/4/2012 | 10:17:23 PM
re: Nortel Set to Raise $1.3B

I take it you have never purchased a Canadian penny stock if you are making comments about high ethical standards in Canadian business.
BobbyMax 12/4/2012 | 10:17:23 PM
re: Nortel Set to Raise $1.3B Dear Dr. Gea:

There is no point your writing hate writing hate e-mail. Please devote your time to learning technology. marketing, company culture, and the culture of the company robbers who have looted close 3 Billion dollars alone.

Thew reports we get on corruption is much more prevelent in the US companies than in any part of the world (e.g, Japan, Germany, United Kingdom, etc.) Also most mostthe robbers are to be found in California which has developed the culture of third world countries. Our prosperity depends on honesty and shared moral and ethical values.

Unfortunately, courses on ethics and morality are not taught in the business schools and engineering schools. Only studets of medicine learn a minimal amount of ethics and morality. This has lead to dishonest management in most of the technology companies, both in start-ups and well established companies. Over 80% of the corrupt and deceptive business practices occur in the state of California

Once again, please do not write hate e-mails about anybody.

Love and best regards.
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