Tech titan JDS fuming at Nortel
Lawsuit being discussed: 'Extreme shock' rocks company as stock plunge shaves $1B off deal's value
Theresa Tedesco, Chief Business Correspondent, with files from Michael Lewis
National Post
Two of Canada's largest publicly traded companies are set to become embroiled in a legal battle in the wake of a stunning profit warning issued last week by Nortel
Networks Corp.
Last week, Nortel closed a US$3-billion deal with JDS Uniphase Corp. to buy a laser manufacturing plant in Switzerland. Under the terms of the deal, Nortel gave JDS
US$2.5-billion worth of Nortel stock immediately with the remaining amount to be paid in 2003.
Two days later, on Feb. 15, Nortel announced that it planned to cut 10,000 jobs because of unexpectedly low sales and profit. That news sent Nortel's share price tumbling
by one-third, shaving about US$1-billion off the purchase price of the Swiss plant.
JDS officials are now meeting with lawyers to discuss suing Nortel. The Ontario Securities Commission is also reviewing the sequence of events that led to the controversial
transaction, according to sources. Officials at the commission declined to comment.
"I can tell you it was a considerable surprise to hear this [the earnings warning] 48 hours after we had effectively got a large block of Nortel stock," said Anthony Muller,
JDS's executive vice-president and chief financial officer, in an interview yesterday. "The whole thing was an extreme shock to us."
Nortel's announcement "caused a very major reduction in the value of the deal," Mr. Muller added. "It's a substantial amount of money and we have a duty to our
shareholders. We're at the stage now where we're studying the entire situation very, very carefully."
John Roth, Nortel's chief executive officer, declined to comment on whether the company would reconsider terms of the deal. "That deal is finished," he said yesterday. "It's
closed."
Sources say the OSC is probing the timing of Nortel's public disclosure about its financial affairs. Specifically, the OSC is expected to review statements Mr. Roth made last
Monday in a conference call with stock analysts during which he predicted the telecommunication giant would meet financial expectations. The following day, Nortel closed
its deal with JDS and two days later, the company announced deteriorating financial results.
Yesterday, Mr. Roth said a routine meeting with sales managers last week forced the company to alter its financial forecasts.
"We run regular reviews with our sales force," he said. "The review disclosed that the orders were not coming in." Although Mr. Roth said the sales meeting occurred last
week, a Nortel spokeswoman refused to confirm the date.
"The OSC will want to know who knew what at Nortel at the time the statements were made," said a senior Toronto-based securities lawyer who asked not to be named.
"The regulator is very big on timely disclosure and this case is pretty apparent."
Sources say the securities watchdog will want to compare the timing of Mr. Roth's rosy predictions with the negative announcement that followed a few days later.
Vital to the probe is determining whether Mr. Roth's comments were accurate when he made them and at what point Nortel officials knew those optimistic predictions were
no longer accurate.
According to Ontario's insider trading rules, companies and individuals are prohibited from issuing and trading stock with material information that has not been widely
disseminated in the marketplace. |
