Nortel, which was rumoured as a possible merger partner with both Nokia and Siemens, and pressure will only grow in the telecommunications equipment industry to buy or be bought.
What's next for Nortel?
Andrew Wahl
Canadian Business Online, June 23, 2006
Most corporate Annual General Meetings are dull, rubber-stamp affairs, with perfunctory speeches and motions that are passed with little discussion. Most shareholders rarely bother to show up, let alone ask tough questions.
Next week's Nortel Networks AGM, on the other hand, will be anything but dull. Sure, Deloitte & Touche will likely be affirmed once again as the company's auditor, the same role it has had before and during the years of Nortel's troublesome financial restatements. But most shareholders could not care less about such governance formalities. They'll be there to hear from new CEO Mike Zafirovski and other executives about the direction they are taking the company.
It was much the same last year, when the AGM — the first in two years, thanks to the accounting scandal — was held in the same location as it will be this year, the cavernous Toronto Congress Centre, in a particularly unglamourous and inconvenient industrial region out by the airport. Then, it was shareholders' first chance to hear directly from Zafirovski's predecessor, Bill Owens (who gave what was likely intended to be a reassuring speech, but came off as surprisingly vague), and rip into the board and executives — anyone, really — for the company's financial incompetence. Thanks to 11 shareholder proposals, all of which were defeated, the event dragged on into the late afternoon.
This year, Nortel is hoping it wraps up within three or four hours. Once again, there are many new faces — not only Zafirovski, who replaced Owens in November, but much of the executive team he's recruited in recent months (he appointed John Roese as chief technology officer on Thursday). Also, the AGM will be presided over by the new chairman, Harry Pearce, and several new directors.
But Nortel also has a lot of new pressures. Now that the series of restatements appears to be behind the company — it better be, for its own sake — Zafirovski is leading a significant transformation at Nortel that, as he and other executives have made clear, will take years. Its strategy, though, is not yet completely clear — a frustration for many watching the company, but especially unnerving for shareholders. Executives have discussed focusing on advance mobile telecommunications equipment, networking gear for corporations, and systems integration, reflecting a new emphasis on services. And there is a lot of emphasis on improving operations to achieve better profitability. Acquisitions, divestitures, partnerships — they're all on the table.
But nothing's happened yet, and the clock's ticking. Four major competitors are now in the process of merging their operations into two: Alcatel-Lucent and, as announced this week, Nokia-Siemens. The stakes are rising for Nortel, which was rumoured as a possible merger partner with both Nokia and Siemens, and pressure will only grow in the telecommunications equipment industry to buy or be bought. Nortel is reportedly in discussions to potentially acquire Siemens' corporate-networks business, which could cost at least $2.1 billion (€1.5 billion). And some analysts muse that Nortel could sell off its underperforming GSM/UMTS wireless network business; others raise the spectre of some kind of deal with Motorola, a company Zafirovski helped turn around before his current Nortel gig.
It's fairly clear that if it weren't for the last several years of upheavals and distractions of accounting screw-ups and executive changes, Nortel might be in a better position to act — or at least appear more attractive to a suitor. In Canada, Nortel still looms pretty large in our consciousness, but in the global arena, competitors may be disregarding it.
As for the long-suffering shareholders, they may recognize that Nortel has come a long way in the past year, with its improved executive team and more stable financial reporting. But ultimately, they still don't know where it's really going. Next Thursday's AGM would be as good a time as any to find out. |
