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Technology Stocks : Nortel Networks (NT) -- Ignore unavailable to you. Want to Upgrade?

To: Stocker who wrote (11058)	7/12/2001 7:11:40 PM
From: William Hunt	Read Replies (1) \| Respond to of 14638

Nortel Pfd-Shr Auction Fails For 2nd Straight Time By BEN DUMMETT Of DOW JONES NEWSWIRES TORONTO -- For the second consecutive time, Nortel Networks Corp. (NT) was unsuccessful in establishing its monthly dividend for a C$100 million of its Series 4 preferred shares. Nortel, the struggling Canadian network-equipment vendor, typically establishes a dividend for the Series 4 preferred shares through a Dutch Auction. However, a Nortel spokesman confirmed that the most recent auction held Tuesday by Computer Share Investor Services was unsuccessful, the second time in a row this has happened. The failure comes as Nortel investors brace themselves for the release next week of the company's second-quarter results, the state of its balance sheet and the company's comments on its outlook. Nortel has already warned that the second quarter will be bloody, with an expected loss of US$19.2 billion, and that it is aggressively trying to conserve cash. In New York Thursday, Nortel Networks is up 28 cents to $8.08 on about 7 million shares, benefitting from the market's bullish response to the second-quarter results of Motorola Inc. (MOT). Even though the mobile handset and telecom equipment vendor reported a big loss for the second quarter and lowered its guidance for the third and fourth quarters, investors seemed encouraged by Motorola's moves to improve its balance sheet and its expectations for improvements in its handset business in the third quarter. Still, some analysts and money managers said the second consecutive failed auction for Nortel's Series 4 preferred shares is a telling example of the market's lack of confidence in Nortel's outlook, especially given the make-up of the holders of the preferred shares. Preferred Shares Held By Financial Institutions Nortel has about 200 Series 4 preferred shares outstanding, and they are held by about 12 Canadian financial institutions and corporations, the Nortel spokesman said. The auction's failure speaks strongly of the difficulties Nortel continues to face "because of who owns the preferred shares" and by the fact that the monthly dividend is determined by auction and takes an up-to-date pulse of the market's view of the company, said Anthony Scilipoti, an analyst at Toronto-based Veritas Investment Research. Scilipoti thinks that Nortel's stock, despite being down sharply from its highs, will likely fall below C$10. The stock is trading Thursday at C$12.33 in Toronto. Typically, a default dividend would become effective if a Dutch Auction to determine the dividend is unsuccessful. However, in the case of Nortel, because the auction process failed twice in a row, holders have the right to "put" their preferred shares to Nortel in exchange for Nortel common stock. Under this scenario, the number of Nortel shares issued would be based on 95% of the weighted average trading price of the shares on the Toronto Stock Exchange for the 10 trading days before Aug. 14. Notwithstanding this option, Nortel can choose to redeem for cash the preferred shares, effective as of Aug. 13. "Nortel is currently evaluating the alternatives and will advise the shareholders of its intention in a timely manner," the Nortel spokesman said. However, it seems unlikely that Nortel would redeem the shares since it is trying to conserve cash. Kim Shannon, a fund manager at Merrill Lynch Asset Management, didn't try to participate in the most recent Dutch Auction of Nortel's preferred shares. Still, she doesn't expect Nortel's stock to move higher in any sustainable way until a new management team is put in place and it can articulate clearly what the firm can likely produce in normal earnings over five years. UBS Warburg also reiterated its cautious view for Nortel in a report issued Wednesday. Betting that the telecom slump will be prolonged, UBS Warburg analyst Michael Urlocker advises potential Nortel investors to remain on the sidelines. The analyst thinks that Nortel's stock price could drift lower, possibly to US$6.