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UPDATE 1-Nortel suspends plans to sell Metro Ethernet unit

(Adds analyst’s comment, details, background. In U.S. dollars unless noted)

TORONTO, Feb 4 (Reuters) - Ailing telecom equipment maker Nortel Networks Corp NT.TONT.N has suspended its plans to sell its Metro Ethernet Networks (MEN) unit as it begins its restructuring under bankruptcy protection.

“The previously announced potential MEN divestiture has been put on hold while the overall business plan is being developed,” spokesman Mohammed Nakhooda told Reuters on Wednesday.

Analysts had speculated the division, which includes Nortel’s optical and carrier ethernet technology, could fetch as much as $1 billion.

The growing business -- which accounts for roughly 14 percent of Nortel’s revenue -- was put up for sale in September, but no bids have materialized to date.

Nortel, North America’s biggest maker of telecom equipment, filed for bankruptcy protection in Canada and the United States last month, blaming the current economic crisis for derailing a turnaround effort that began in 2005.

It had about $2.4 billion in cash when it sought court shelter from its creditors and about $4.5 billion in long-term debt, according to court documents.

Analysts have said the Toronto-based company will likely have to shed assets at fire sale prices as it fights to survive. The suspension of the MEN sale signals such moves may be very difficult to complete given the weak economy.

That’s because rather than spending on acquisitions, potential buyers may opt to hoard cash as they face the downturn.

However, filing for court shelter from creditors with a relatively strong cash position also removes some desperation from Nortel’s divestiture plans, said Duncan Stewart, an analyst at DSAM Consulting.

“Although they probably didn’t get any really great bids, the fact they are no longer pressured to sell ... gives them a chance to hang on to a crown jewel,” he said.

Nortel shares closed 0.5 Canadian cents lower at 11 Canadian cents on the Toronto Stock Exchange. In mid 2000, at the height of the company’s success, they were worth more than C$1,100 each, adjusted for a stock consolidation that took place in 2006.

$1=$1.23 Canadian Reporting by Wojtek Dabrowski; editing by Peter Galloway