Nortel files for Chapter 11 bankruptcy protection

Beleaguered Canadian kit vendor Nortel Networks filed for Chapter 11 bankruptcy protection under the US Bankruptcy Code, Wednesday afternoon.

The company, which is struggling under a heavy debt burden, has watched its shares go into freefall since it revealed it was seeking legal advice in anticipation of a possible bankruptcy protection filing before the Christmas break.

The vendor is not yet out of cash – it has an estimated $1bn war chest, but the company is losing money hand over fist and an estimated $4.5bn debt pile.

Nortel claims the Chapter 11 filing will allow it to deal decisively with its cost and debt burden, by restructuring its operations and narrowing its strategic focus – which probably means the company will be broken up and sold off. In fact, the firm began selling off ‘non core’ assets at the end of last year.

“Nortel must be put on a sound financial footing once and for all,” said Nortel president and CEO Mike Zafirovski. “I am confident that the actions we’re announcing today will be the fastest, most effective means to translate our improved operational efficiency, double-digit productivity, focused R&D and technology leadership into long-term success. I want to reaffirm Nortel’s dedication to delivering world-class solutions and services to customers.”

Nortel said its affiliates in Asia, including LG Nortel and in the Caribbean and Latin America, as well as the Nortel Government Solutions business, are not included in these proceedings and are expected to continue to operate as usual.

Restrictions will be put on trading in the company’s shares, which have plummeted to C$0.52 on the Toronto Stock Exchange.

Only yesterday telecoms.com was speaking with senior Ovum analyst Emeka Obiodu, when Nortel came up in conversation. “In a way it’s easy to blame the credit crunch, to use that as the scapegoat for a failed business strategy. A classic example is a company that’s been struggling for ages like Nortel or Moto. So if they came out and said the credit crunch had killed them off, you know it could only have been the last straw to break the camel’s back. They’ve been struggling because they’ve not been able to compete or they’ve been out manoeuvred in their market,” Obiodu said.