I like the Nortel-Avaya deal because it generates cash.
The reality is that the office phone systems business is a tough sector to be in. Unless you specialize in the sector, it is a major pain to manage. I am not implying phone systems are not important but they require a completely different set of sales and marketing skills than those that exist in infrastructure manufacturers. So in my opinion it is a good deal.
I understand that some in Nortel hoped the unit could have been part of the core of a new Nortel. However, frankly, selling/making office phone systems require major and constant capital reinvestment. You literally have to come out with a new model/system every year. Keep in mind you cannot even resell an old system easily. Once an office phone system is installed it stays put. When you move to new offices you typically buy a new office phone system. Further, once an office phone system is installed most corporations hang onto the same system for years. I have run sales organizations before and this is one sector I always avoided. Even though Nortel sold into the government sector, the office phone systems business is a huge task. My hat off to vendors like Avaya.
Getting back to Nortel. Nortel just made $475 Million for its office phone systems business. Great.
Criticisms of Mike Zafirovski about the Avaya sale are not fair. First, Nortel was losing money on the division. Second, Nortel is in bankruptcy. The reality is that Nortel would be lucky to get 10 cents on the dollar for anything it sells today. During the 2001 meltdown companies were being dumped for as little as 3 cents on the dollar. In 2009 we are in a recession that is far worse than the 2001 recession. My suggestion to analysts who are dumping on Zafirovski is layoff. Should Mike Zafirovski have sold off the unit sooner? Probably but hindsight is 20/20 so stop crying over what has happened. Restructuring is about making hard decisions and moving on. If Zafirovski had sold off the unit last year before the bankruptcy filing he would have been hung out to dry for giving up too early. On Wall Street, executives are never forgiven for not being fortune tellers. However, in restructuring, you never dwell on past mistakes; your job is to clean up the mess fast, recoup as much money as you can, and exit your clients out of the deal as quickly as possible.
Nortel’s goal is to generate cash for its secured creditors and bondholders. Other claimants may be entitled to cash as well. This all means that Mike Zafirovski needs to make a decision without regret. He will probably upset someone but restructuring is not for the feint of heart and you don’t ever please everyone.
As I write this, alternative bids for Nortel’s wireless unit are due shortly. For creditors a bidding war is good. MatlinPatterson appears to be handling things well for their client(s) and partner(s). MatlinPatterson should be presenting their plan this week.
As I write this there is a third party in Canada comprised of former Nortel executives that is seeking to get into the bidding.
Assuming the bidding war results in a sale to MatlinPatterson or the Nortel executives we could actually see Nortel emerge from bankruptcy. This may result in other divisions being sold. However, what it does mean is that the company as a legal entity continues. People need to understand restructuring is an extreme makeover, which means an emerged company will look different than what it went in looking like.
That all being said. The goals for Mike Zafirovski are to recover as much cash as possible for the secured creditors and bondholders of Nortel and to find someone to buy the company. If Canada is lucky, the company will be purchased by someone who will keep the name Nortel and keep it in Canada.