Nortel likely target once accounting woes pass
By ANDREW WILLIS
Thursday, July 8, 2004 - Page B14
Wednesday, Jul. 7
The sharks are circling Nortel Networks, waiting to pounce if the telecom hardware company starts to show signs of improved health.
As Nortel accountants work flat out to prepare accurate financial reports and put months of scandal and uncertainty behind them, at least two rivals are sizing up the telecom hardware company for a takeover. The universal view on the Street is that Nortel's well-publicized governance and accounting woes will leave it vulnerable to a hostile bidder, once the uncertainty around the company's numbers is sorted out.
Every major investment dealer has built a model of Nortel's outlook, and dangled the prospect of a takeover before potential buyers. Nokia, Alcatel and Ericsson have all been pitched, while Cisco has indicated it's interested in partnerships, but not a purchase. Others are nibbling at the bait, although no firm would be willing to strike with any kind of serious offer until the release of quarterly statements show just what's been happening at Nortel over the past two years.
"It would be a sad day for this country if Nortel were to go, but there's certainly a couple of companies taking a look," said one senior investment banker who has worked with the company in the past. These mixed feelings are commonplace. While any deal maker would love the thrill and fees of a $20-billion-plus takeover, it doesn't take much of a nationalist to worry about losing a company of this stature, however diminished.
It's easy to understand the interest. Lost in the understandable hubbub over the company's woes is the fact that Nortel's underlying businesses are doing quite well. The wireless division is seen as especially attractive, winning new orders from both existing clients and those of rivals.
In contrast, several other hardware companies seem lost. Nokia is missing in action when it comes to the next generation in wireless. Other European companies would look at owning Nortel as a way to expand their beachhead with North American telecom clients.
Nortel executives would have no interest in a deal right now, as CEO Bill Owens has made it clear that the company will be diner, not dinner, once it gets back on its feet.
But the former admiral may not have time to set Nortel on course. Right now, the numbers work against Nortel. Its stock trades at a discount to rivals, measured by valuations such as price-to-projected revenue. Burdened by scandal, Nortel changes hands at around 1.8 times its expected 2005 sales, based on estimates done by RBC Dominion Securities. Nortel's peers trade at a multiple of 2.4 times projected revenue. Some companies in this space have seen their stock fetch premiums of 4.1 times next year's revenue.
With stock that sports a higher multiple than Nortel's, a rival has the currency it needs to buy the Canadian company. This advantage is likely to narrow, or vanish, once all the numbers are updated, the scandals fade, and investors begin to once again focus on fundamentals.
There was a time when the federal government would likely have stood in the way of the foreign purchase of a landmark Canadian company.
This is no longer seen as being the case. Despite Nortel's iconic role in Canadian commerce, the Liberal government has shown in the past that it doesn't stand in the way of globalization and industry consolidation.
The window will be narrow, but there may be a time in the not-to-distant future when Nortel's numbers are out, and it is vulnerable to an opportunistic hostile takeover.
History fund established
Talk about putting their money where their mouths are.
Six history buffs (and some noted cigar fans) whose careers have incorporated most of the major deals of the past four decades have donated $3-million to establish the first-ever foundation for the study of business history at the University of Toronto's Rotman School of Management.
The L.R. Wilson/R.J. Currie Chair was created this week with the backing of Lynton (Red) Wilson, chairman of the boards at CAE and Nortel Networks, and Richard Currie, chairman of BCE and former president of George Weston and Loblaw.
Also kicking in were Tony Fell, chairman of RBC Dominion Securities; entrepreneur James Fleck, president of Fleck Management; financier Henry (Hal) Jackman; and John McArthur, dean emeritus of Harvard University's Graduate School of Business Administration.
Noting that the history of Canadian business is a glaring omission in management education in our country, the new program is meant to fund both courses and research. Said Mr. Wilson: "A business leader must be able to ask and answer the question, 'How did we get to where we are?' in order to put current challenges and opportunities in the proper context."
"I am passionate about history because my professional successes are largely based on historical factors," Mr. Currie said. |
