Nortel Networks is using its $2.48 billion cash position to hold out for the highest bidder despite continuing losses and crashing sales.
Although Nortel lost $507 million dollars in its first quarter on a 37 percent decline in sales, which plummeted to $1.73 billion, the company has refused under-priced bids from Nokia Siemens Networks (NSN) and Avaya, a report says.
Nortel declined an unsolicited $850 million bid for large portions of its carrier-networks group from NSN, according to an unnamed source cited in The Wall Street Journal. The Journal also reported that Nortel had planned to announce Avaya as the buyer for its enterprise unit but could not complete the deal.
However, lack of visibility could make holding out for better bids a difficult strategy to follow, says Ronald Gruia, industry analyst at Frost & Sullivan. “Given the current situation, many of their customers are shying away from making commitments. Obviously this hurts them and makes it more challenging to anticipate what their pipeline will be. If their sales are declining, then it remains to be seen whether this will end up hurting them more than benefiting them,” Gruia says. “Maybe Nortel is trying to buy some time.”
Though Nortel plans to emerge from bankruptcy protection as a smaller, leaner company, it also has been in talks to sell its largest segments and may not make it through in one piece. However, the company’s strong cash position appears to have given Nortel some bargaining power despite its otherwise weak position.
Nortel CEO Mike Zafirovski has repeatedly stated that the company is focused on maximizing value for stakeholders, creditors, customers and employees. “Nortel has rich resources, leading-edge know-how and a deep talent base, and it is our responsibility to preserve this value," said Zafirovski in the company’s first-quarter earnings statement that was released yesterday.
"We have made the necessary structural decisions to give Nortel the ability to optimize value, and preserve innovation platforms and employment to the greatest extent possible. Our businesses will have the opportunity to more effectively serve the discrete needs of their respective customers and market segments, while maintaining high customer service and network performance levels."
Zafirovski said that although Nortel is in discussions with outside firms, no decisions have been made and the company is still moving ahead with steps to become a standalone business.