June 22, 2009, 9:17 AM — Nortel Networks has entered into an agreement with Nokia Siemens Networks to sell its its wireless network infrastructure business assets for US$650 million, it said on Friday.
Reports of the company's interest in Nortel's wireless assets surfaced back in April, and the two have now entered into a so-called stalking horse agreement, which means that it's an initial bid on the assets from a party chosen by the bankrupt company -- in this case Nortel. Other telecom vendors, including Ericsson and Huawei, will also get a chance to bid.
Nortel filed for bankruptcy protection in January. Back then the company said it would undertake "a comprehensive business and financial restructuring" and expected to emerge from the bankruptcy process "more focused, financially sound and competitive". In the end, though, it has been forced to sell off its assets piece by piece.
In addition to the sale of its CDMA (code-division multiple access) business and LTE (Long Term Evolution) wireless access assets is currently in discussions with other companies to sell the rest of its businesses. However, it is also assessing other restructuring alternatives if it is unable to get a high enough bid, the company said. Besides wireless networks, Nortel's current range of products includes optical networks, security products and unified communication solutions.
The company will also delist its shares from trading on the Toronto Stock Exchange. Shareholders are expected to walk away empty-handed, according to Nortel.
The agreement with Nokia Siemens specifies that at least 2,500 employees would have the opportunity to continue working for the Finnish and German company. The number represents "a significant portion of the employees associated with the assets being sold," Nortel said, without going into detail.
A deal with Nortel will allow Nokia Siemens to strengthen its position in North America and in the burgeoning market for LTE equipment, which provides a future upgrade path for mobile network operators. Nokia Siemens will get the business "at a price that makes good economic sense", it said.
Nokia Siemens needs to do something to help it acquire new operator customers, according to Mark Newman, chief research officer at market research company Informa Telecoms and Media. Today it trails Ericsson and Huawei, and buying Nortel's wireless business will indeed give it a foot-hold in North America, Newman said.
It isn't the first time European and a North American telecom vendors have merged. The merger of Alcatel and Lucent has been a mixed bag, and they have had a difficult time becoming one company, according to Newman. Overcoming the cultural divide will be easier for Nokia Siemens and Nortel, since the latter is so much smaller, but the difficulty of reconciling different business cultures shouldn't be underestimated, Newman said.