Plan to recapitalize Nortel a tough sell

By Pav Jordan - Analysis

TORONTO (Reuters) - A plan by U.S. creditors to reorganize and revive Canada's bankrupt Nortel Networks (NRTLQ.PK), once one of the world's biggest makers of telecom equipment, will be a tough sell to investors and clients, but it is not without precedent.

MatlinPatterson Global Advisors, a private equity firm specializing in distressed investments, and a major bondholder and Nortel creditor, said on Monday it would present a proposal to reorganize the businesses of the failed telecoms giant, which filed for creditor protection in January.

Analysts say the company, which has proposed a deal to sell its CDMA and LTE wireless technology businesses to Nokia Siemens Networks NSN.UL for $650 million, would be worth about $3 billion if sold in one piece.

Nortel is North America's biggest maker of telephone equipment, but it has been steady decline since the tech bubble burst in 2000.

Repeated attempts at a comeback have failed, losing it credibility in an industry where supply and technology agreements imply billions of dollars of investment and sometimes decades of commitment.

"It's very much a Humpty Dumpty story and we're beyond the point at which anyone can hope to keep all of the various pieces together under Nortel's banner," said Carmi Levy, an independent technology analyst based in London, Ontario.

"I think what they (Matlin) are trying to do is they are trying to measure the market for what the potential value would be for wireless, for Metro Ethernet and for enterprise," said Levy.

Nortel is still looking for serious bidders for the enterprise unit -- which makes networks and gear for large corporate clients -- and the Metro Ethernet Networks unit, which makes Internet infrastructure and includes its optical and carrier ethernet technology.

GOLDEN ERA GONE

In its heyday, Nortel employed more than 90,000 people and even a blip in its share price -- which once reached a consolidation-adjusted high of more than C$1,100 during the tech boom -- could sway entire stock markets in Toronto and New York. Today, it employs about 30,000.

MatlinPatterson thinks it could win back some of its former glory and said on Monday it would work toward an alternative to the so-called "stalking horse" bid by Nokia Siemens Networks.

"MatlinPatterson believes Nortel is a solid company with a valuable brand, talented employees and innovative technologies. It is interested in retaining, for current investors, the inherent value of the company rather than merely accepting a 'fire sale' of its core asset followed by the wholesale liquidation of the remaining businesses," it said in a statement.

"The firm has a proven track-record of leading successful reorganizations and is currently conducting due diligence and meeting with other potentially interested parties as part of our effort to prepare an alternative proposal."

Analysts say MatlinPatterson could raise the kind of capital required to do a Nortel deal, especially if it does not have to take on liabilities like pensions.

A private equity take-out of the once storied company may also sit better with Canadians than the sale of individual assets, potentially keeping the company brand and jobs in Canada.

"It is theoretically possible or even probable that a private equity bid, rather than breaking the company up for scrap, would be a better outcome," said Duncan Stewart, an analyst with DSAM Consulting in Toronto.

He cited precedents like the private equity takeover of Canadian technology company Corel, which held on to its offices and much of its staff after being taken over by a U.S. firm.

"It is not in any way implausible that a private equity firm like MatlinPatterson would take a swing at Nortel," he said.

Toronto-based Nortel filed for bankruptcy protection in Canada and the United States in January, blaming the economic crisis for derailing a turnaround effort that began in 2005.

($1=$1.16 Canadian)

(Additional reporting by Euan Rocha; editing by Rob Wilson)