from canada;s national post..."i'm going to retire later than i thought"
Nortel plunges, class-actions fly
Markets fall worldwide: 'I'm going to retire later than I thought,' says shareholder
Michael Lewis and Jonathon Gatehouse
National Post
Kevin Frayer, The Canadian Press
David Champman, chief technical analyst with Westminster Securities Inc. in Toronto, watches the rise and fall of Nortel Networks stock on his computer screen yesterday.
Nortel Networks lost $47-billion in value yesterday after its stock plunged and investors hit the company with the first of what is expected to be several lawsuits.
Stock markets around the world tumbled yesterday in the wake of news that Nortel plans to cut 10,000 jobs this year because of poor demand.
Nortel's share price fell by 33% on the Toronto Stock Exchange and the company's market value was cut by $47-billion.
Nortel's woes pulled the TSE 300 Index down 574 points, or 6%, and stock markets in New York, Paris, London and Tokyo were also affected.
TSE trading was halted temporarily as the exchange was overwhelmed by the volume of Nortel sell orders, with many institutional investors shifting transactions to the New York Stock Exchange.
A New York law firm yesterday filed the first class-action lawsuit against Nortel on behalf of shareholders who have lost billions of dollars.
The suit alleges that Nortel "issued materially false and misleading information that misrepresented the company's financial condition and prospects."
Nortel has not filed a statement of defence.
These kinds of class-action lawsuits are common in the United States when a company's share price falls sharply.
In Toronto, some investors watched in amazement as Nortel's share price sank.
"I'm just going to have to retire a lot later than I thought," said Mark Bonamini, a Nortel shareholder, as he watched a large computer screen in downtown Toronto.
Mr. Bonamini resisted the urge to panic when Nortel's stock crashed in late October from its $124.50 peak to below $70.
Instead, he bought tech stocks at what he thought was a deep discount.
"I thought it was at the bottom at the end of December," he said.
"It didn't turn out that way."
Standing in the lobby of a bank tower, Don Gushlak was worrying about his daughter's reaction to the slide.
The market-savvy nine-year-old owns 10 shares of the once-mighty high-tech firm.
"This morning she said 'Dad, why didn't you sell it?' I told her she has a decade to catch up," Mr. Gushlak said.
On Wall Street, the Dow Jones industrial average fell 91.20 points to 10799.82 after having dropped more than 100 points in the opening minutes. The technology weighted Nasdaq Index dropped 5%.
Nortel suppliers also swooned, with Montreal-based C-Mac Industries Inc. plunging 32% and Celestica Inc. of Toronto off by 13%.
Analysts said the Nortel meltdown also raises doubts about the company's plans to spin off its optical parts division later this year.
With markets in disarray and the U.S. economy slowing, many investors were left wondering where they go from here and why there had been no hint of Nortel's woes two weeks ago, before it closed a pair of major transactions based on its stock price.
JDS Uniphase Corp. of Ottawa, which sold a Zurich-based manufacturing plant to Nortel two days before Nortel slashed its earning forecast by two-thirds and its revenue outlook in half, said it had no indication of Nortel's planned warning. JDS, under pressure to sell the plant to Nortel in order to gain regulatory clearance for a major acquisition, sold the facility for Nortel stock worth US$3-billion at the time of the deal, about US$330-million less today.
"It's a rather frightening concept," said telecommunications analyst Paul Sagawa, the first telecommunications industry watcher in North America to issue a "sell" recommendation on Nortel shares, which were downgraded by at least 15 other analysts yesterday.
"To close a deal and then issue a pre-announcement of this magnitude is quite extraordinary."
Nortel also filed with U.S regulators on Jan. 31 to issue US$1-billion of debt securities, issuing an accompanying prospectus that made no mention of an impending warning.
Nortel, a Brampton, Ont.-based maker of optical parts and systems used to guide traffic along the world's high-speed communications networks, said late Thursday its sales would grow by 15% this year compared with its forecast Jan. 18 of 30%. It said a slowing U.S. economy -- Nortel does more than 65% of its business in North America -- will produce a US4¢ per share loss in the first three months of the year. The company also said it would would cut another 6,000 workers around the world on top of the 4,000 announced last month. |
