Telecom: Nortel's final folly

The company's best asset was supposed to sell for billions. What happened?

As Nortel Networks’ everything-must-go asset sale drags into autumn, the spotlight now swings back to a piece of the company many thought would sell first — Nortel’s Metro Ethernet Networks division. MEN, which sells gear to telecom carriers for the high-bandwidth Internet backbones that run within and between cities, was once considered a crown jewel. But a year after it was put up for sale, and nine months since Nortel sought bankruptcy protection, it remains in the showroom.

For creditors and employees, the lack of a formal offer is disconcerting. Two major Nortel divisions have already been auctioned off: on Sept. 14, Avaya Inc. of Basking Ridge, N.J., announced it was paying US$915 million for the company’s Enterprise Solutions division; in July, Sweden’s Ericsson won Nortel’s prime wireless business and assets at a cost of US$1.13 billion. Those units sold at depressed prices, however, and now MEN faces a similar fate. Last September, when Nortel first put MEN on the block, it was seeking upwards of US$2 billion — not out of line for a division with US$1.4 billion in 2008 revenue, industry-leading technology and a wealth of talent. A year later, however, those strengths are eroding fast. “The clock started ticking once they made that initial announcement,” says Sterling Perrin, senior analyst with Heavy Reading, a market research firm in New York. “Competitors seized on that and started going after Nortel’s customers.”

Up to nine companies were reportedly mulling bids this summer, at a price of about US$750 million. But no one is in a rush. Potential buyers know they have more to lose by overpaying than they do letting MEN languish a little longer.