January 14, 2009
A New Chapter for Nortel - Chapter 11
Ottawa based telecommunications giant Nortel Networks today filed for bankruptcy protection in the United States and Canada following a late night board meeting in Toronto yesterday. Closing at just under 4cents per share on the Toronto Stock Exchange Tuesday afternoon, (down from a historic peak of $830/share in Sept 2000), the move to seek Chapter 11 protection is seen as a way to avoid paying over $107million in interest on loans the company has taken over the years. In a terse statement, Nortel CEO Mike S. Zafirovski said, "Nortel must be put on a sound financial footing once and for all. These actions are imperative so that Nortel can build on its core strengths and become the highly focused and financially sound leader in the communications industry." As part of Nortel's restructuring plan, the Government of Canada has said it would provide up to $30million in loans through Export Development Canada however many feel Nortel will not be able to complete a series of sales needed to put the company back on solid footing. Nortel Networks remains one of the largest producers of telecommunications equipment in the world. In the third quarter of 2008 it reported a $3.8billion loss. Observers expect Nortel to move many of its operations offshore to India or China to lower labor costs resulting in an estimated loss of 6,000 jobs in Canada and approximately 10,000 jobs in the US. Nortel currently employs approximately 26,000 people globally. If Nortel is unable to convince American and Canadian courts it has the ability to successfully restructure, observers expect the break-up of the company and a fire-sale of its various units.