Nortel asset firesale seen as it fights to survive

TORONTO (Reuters) - Nortel Networks Corp will likely give up its crown as North America's biggest maker of telephone equipment as it sheds assets at firesale prices in a desperate bid to survive.

The Canadian company said on Wednesday that the "global financial crisis and recession" have sabotaged the turnaround effort it had started in 2005, pushing it to file for court shelter from its creditors.

Now, as it tries to stretch its $2.4 billion in cash to carry it through the court process and a persistently tough operating climate, Nortel's widely expected asset sales will have to take place at an economically inopportune time, to say the least.

"They may be forced to sell assets to reorganize, but they're not going to get much for them," said Ed Snyder, principal analyst at Charter Equity Research. "It's a tough position to be in."

He added potential buyers could be "picking over the pieces rather than buying the whole".

What's most likely is that Nortel will be reshaped and scaled down as it restructures under court protection.

"I think the company is not going to exist in its current form," said RBC Capital Markets analyst Mark Sue. "It will be a much smaller firm with assets picked up by low bidders."

With credit markets still in near-freeze, interest from private-equity groups is highly unlikely. That leaves strategic buyers -- competitors, in other words -- to kick the tires on Nortel's divisions.

These could include Alcatel-Lucent, Cisco Systems, Nokia Siemens Networks and Ericsson. However, those companies face their own challenges as the economy deteriorates and could opt to hoard their cash rather than spend it on buying Nortel units.

"It's not really the time to buy assets," Snyder said.

So far, Nortel has only said it wants to sell its growing Metro Ethernet Networks business, which includes the Toronto-based company's optical and carrier ethernet technology. The unit accounts for about 14 percent of Nortel's revenue. No bids have materialized yet.

Meanwhile, Nortel's bankruptcy filing is being seen as a prudent measure to help it navigate the choppy markets it's facing and give it time to thoroughly consider which assets to divest.

"I think it's a smart move for the company because they'll be able to manage the business more effectively because they still have a lot of cash to run the business," said UBS analyst Nikos Theodosopoulos.

"It will allow them to make more logical and timely decisions on what assets to sell."

($1=$1.24 Canadian)

(Additional reporting by Sinead Carew in New York; editing by Peter Galloway)