June 27, 2009 / 12:15 AM / 10 years ago

Nortel creditors file objections to unit's sale

TORONTO (Reuters) - Creditors and suppliers of Nortel Networks filed a series of objections on Friday to the proposed sale of a unit of the bankrupt telecom equipment maker to Nokia Siemens Networks.

MatlinPatterson, a major bondholder and Nortel creditor, said restrictive conditions imposed by the current bidding process may prevent, rather than promote, a valid competing bid to emerge for the unit, which makes advanced wireless technology.

“These restrictions serve only to permit Nokia-Siemens to effectively lock down these valuable core assets,” said the creditor in a U.S. court filing.

In a bankruptcy case, when debtors lack the ability to repay creditors, the creditors have the option either to break up the company and monetize the assets, or to run the company as a going concern and take equity in lieu of their claims.

MatlinPatterson argues that the current bidding process fails to pay sufficient attention to the “going concern” option.

The firm said it has begun preliminary discussions with other creditors and is considering supporting a Chapter 11 reorganization plan in the United States, in lieu of the proposed sale.

Last week, Nokia Siemens Networks — a joint venture of Nokia and Siemens — said it would buy Nortel’s advanced wireless technology business for $650 million.

The deal would allow Nokia Siemens to expand its presence in North America and make it a leading supplier of wireless infrastructure products in the region.

A spokesman for Nortel was not immediately available for comment.

Toronto-based Nortel, once the largest North American telecommunications equipment manufacturer, 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.

MatlinPatterson also said it is seeking an extension of the sale process, arguing that two weeks longer would harm no one.

“MatlinPatterson is not prepared to give up on its investment in Nortel or in the potential in the company,” it said. “It believes there may be more value to be achieved.”

OTHERS OBJECT TO DEAL

Nortel supplier Flextronics Corp and other unsecured creditors filed their own objections to the proposed sale in the U.S. Bankruptcy Court in Wilmington, Delaware.

Flextronics, which is Nortel’s largest supplier, said it has concerns that its contractual rights and claims may be affected by the proposed sale of the CDMA and LTE assets.

CDMA, or code division multiple access, is the wireless technology that lost the battle for global dominance but still has a strong position in some markets, including North America. Nortel has a roughly 30 percent share of the global CDMA market.

LTE (long term evolution) is a new high-speed wireless technology that is intended to replace current mobile networks. LTE networks are slated to be deployed in coming years by large wireless companies including Vodafone Group Plc and Verizon Communications Inc.

In a separate filing, a committee of unsecured creditors alleged that the proposed bidding process is unfair.

“Certain aspects of the bidding procedures serve to stifle rather than encourage active bidding at auction,” said the creditors, who contend that the process must be modified to ensure a fair sale of assets.

Besides the advanced wireless technology, Nortel is also looking to sell other assets and said last week it was making progress in those talks.

U.S. Bankruptcy Court Judge Kevin Gross is scheduled to consider approving the bidding process rules next week. The case number in the U.S. Bankruptcy Court, District of Delaware is 09-10138.

Reporting by Euan Rocha; Editing by Frank McGurty and Rob Wilson

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