That was quite a fast auction. I expected some haggling until Monday, July 27, 2009. I am impressed with the bid Ericsson had put in. Imagine $1.13 Billion for Nortel. Okay before you start thinking Ericsson overpaid for Nortel. Nortel generated $2 Billion in revenue for its CDMA operations. In actuality that 2008 revenue number is meaningless to me because that was last year and spending for 2009 CDMA was probably down. There are also who may be saying they underpaid for Nortel.
From my point of view, the bid was successful. The creditors and bond holders of Nortel and been publicly banding about $750 Million as the number they wanted. At least all public release made one think the creditors and bond holders wanted at least that much. Well the bid came in at $1.13 Billion.
I think Ericsson got the company for a steal. Ericsson now owns a debt-free company that has CDMA contracts with Verizon, Sprint, US Cellular, Bell Canada, and Leap. In other words, Ericsson just got contracts with companies it had never in any substantial fashion ever sold to. Except for Ericsson’s recent network management contract with Sprint, I cannot recall any of those carriers ever doing business with Ericsson. Now suddenly, Ericsson has a relationship with some of the biggest carriers in North America. I would say Ericsson paid wisely for Nortel.
This is not a CDMA win. Ericsson has never been a provider of CDMA equipment. I am sure Ericsson will continue to honor whatever CDMA commitments Nortel has. This is a win for LTE. This is a win for Ericsson in terms of getting brand new customer relationships.
As for why Nokia Siemens lose the bid? At this moment (as I write this) I have not heard any confirmed rumors. But the bottom line is that by whatever measure Nokia Siemens was using to determine the value of Nortel’s wireless division it was clear that Nokia Siemens did not place the same level of strategic importance on Nortel as did Ericsson. In the end the winning bid of any auction is based on subjective value of the auctioned asset.
From the perspective of the seller, valuation needs to be based on the strategic aspects of the property and not the financial aspects (financial valuation) of the balance sheet.
I have heard conflicting accounts as whether or not most or some of Nortel’s staff will remain. This is small comfort to Nortel employees. The sale is also no comfort to Canada. Canada just lost Nortel. To those who understand the importance of a nation to have its own source of intellectual telecom leadership I would say the sale is a blow to the nation of Canada. In regard to the creditors and bondholders of Nortel, I think they recovered more than they had originally expected. Congrats to the financial/restructuring advisor to the creditors committee of Nortel.
What does this mean for the telecom industry? I would say the sale could be a game changer for the industry. Ericsson is a competent infrastructure vendor. Ericsson is also one of the world’s leading GSM and UMTS vendors, which also means this company is a major LTE (long term evolution) player. Although LTE is standards newbie and is effectively still a newbie technology, Ericsson was able to demonstrate the first end-to-end cellular call enabled by LTE during the Mobile World Congress of 2008.
I would say that the LTE wars have just taken an interesting turn in favor of LTE. If Ericsson can deal with the merger integration issues in less than a year, Ericsson could become North America’s dominant wireless infrastructure vendor. Ericsson may also become the world’s driving force behind LTE. In other words, game changer.
Now a big question that may be getting traction is: Will the Canadian government allow their premier telecom vendor to disappear from Canadian hands? I don’t have an answer to that question. When Lucent was acquir