Nokia Siemens Networks will buy Nortel Networks' wireless technology business for $650 million.
Struggling Nortel, a one-time giant in telecommunications equipment, had filed for Chapter 11 bankruptcy in January in hopes of reorganizing. But that is unlikely now.
Nokia Siemens said Friday that it will use Nortel's CDMA and LTE technology to expand its presence in North America. CDMA, or code division multiple access, is one of the two major networks operating in the U.S. and is used by Verizon Wireless and Sprint. LTE, or Long Term Evolution, is 4G wireless technology that will potentially replace today's mobile networks.
"This agreement provides an important strategic opportunity for Nokia Siemens Networks to strengthen its position in two key areas, North America and LTE, at a price that makes good economic sense," Nokia Siemens CEO Simon Beresford-Wylie said in the statement.
As part of the deal, about 2,500 Nortel employees in the U.S., Canada, Mexico, and China can keep their jobs. Nortel said this represents a "significant portion" of the workers associated with that part of its business.
"Maximizing the value of our businesses in the face of a consolidating global market has been our most critical priority. We have determined the best way to do this is to find buyers for our businesses who can carry Nortel innovation forward, while preserving employment to the greatest extent possible," Nortel CEO Mike Zafirovski said in a statement.
Toronto-based Nortel also said that it is working toward selling off the other parts of its business and that it is applying to be delisted from the Toronto Stock Exchange.
The deal with Nokia Siemens, which is expected to close in the third quarter, must be approved by both U.S. Bankruptcy Court and the Ontario Superior Court of Justice.
Nortel was founded in 1895 as Northern Electric and Manufacturing and supplied telecommunications gear for Canada's young telephone system. At the height of its glory days about 10 years ago, Nortel was worth $250 billion and had more than 90,000 employees.
Charter Communications announced Thursday it plans to file for Chapter 11 bankruptcy as part of an agreement reached with its debt holders.
The announcement runs counter to the success its largest investor and Chairman Paul Allen received when he co-founded Microsoft with Bill Gates. Since that time, however, Allen has run into bumps along the way with his other investments.
Charter, which announced its plans to file for Chapter 11 while the markets were open, ended the day down a whopping 48.1 percent to close at nearly 3.5 cents a share.
Charter announced its plans to file for Chapter 11 while the markets were open. Its stock ended the day down 48 percent to close at nearly 3.5 cents a share.
(Credit: Yahoo Finance)By April 1, Charter plans to file for its reorganization bankruptcy, which is designed to provide $3 billion in new capital, a debt reduction of approximately $8 billion, and leave the company with $800 million in cash and short-term securities.
Charter CEO Neil Smit said in a statement:
We are pleased to have reached an agreement with such a significant portion of our bondholders on a long-term solution to improve our capital structure.
We are committed to continuing to provide our 5.5 million customers with quality cable, Internet and phone service, and through this agreement, we will be even better positioned to deliver the products and services our customers demand now and in the future.
The cable operator also noted that as part of the agreement, Charter's two subsidiaries will make approximately $74 million in interest payments to certain outstanding senior note holders, within the grace period of when its January 15 senior notes were due.
Nortel Networks, once a high-flying telecommunications equipment maker, filed for Chapter 11 bankruptcy protection Wednesday.
Nortel has been struggling to regain its footing since the last economic downturn in 2001 and 2002, which hit the telecommunications industry particularly hard. But the recent credit crunch may end up as the death knell for the company, making it difficult for Nortel to fund its operations. At the same time, customers have also pulled back drastically on spending for the company's voice-only equipment.
For the past several months, Nortel's management team has been trying to cut spending. The company has also put some of its assets up for sale in an attempt to survive. But mounting debt payments and a steep drop in revenue appear to have caught up with the company.
The most pressing issue for the Toronto, Ontario-based company is paying the interest on its $3.8 billion in bond debt. Nortel faced a $107 million bond interest payment this week, The Wall Street Journal reported.
While bankruptcy protection doesn't always signal the end of a company, in today's economic climate, it could prove disastrous as the already-struggling company may find it even more difficult to convince customers to buy its gear. Carmakers used this argument recently when seeking a bailout from Congress. They said that customers would be unwilling to buy cars from companies that they feared wouldn't be around to service them.
Nortel has about $2.6 billion in cash, which some analysts have said could help it stay afloat until at least 2010. But as the company sinks deeper into trouble, many industry watchers believe that Nortel will likely be broken apart during Chapter 11 restructuring, with individual businesses sold off one by one.
In December, the New York Stock Exchange warned it would delist Nortel's stock if the company couldn't get shares to trade above $1 minimum. Nortel is currently trading at 32 cents.
Nortel's fall from grace was a result of a series of strategic missteps over the years that chipped away at the company's value.
In 2000, Nortel was worth about $250 billion. The company now has a market value of about $275 million.
Mike Zafirovski came on board as chief executive three years ago to help turn around the company. Initially, he had some success building profits from selling wireless gear to U.S. operators. Under his leadership, Nortel invested in new technology, and the company was preparing for the next wave of wireless networks. But then the economy tanked, and phone companies started to pull back on spending, which resulted in a sharp revenue drop for Nortel.
In September, Nortel announced more cost-cutting and said it would sell some of its business units. But the company was unable to find a buyer.
Nortel isn't the only big telecommunications equipment maker to struggle. Alcatel Lucent, which has also been trying to get back on track after the telecommunications boom, announced a restructuring late last year.
Nortel is also expected to seek bankruptcy protection against creditors in its home country of Canada.
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