Nortel's Restructuring Plan May Call For A Breakup

Burning through its cash reserves at an alarming rate and unable to find financing to fund ongoing operations, Nortel Networks is faced with breaking itself up and selling off its major units, according to several reports.

Publically, the company -- which filed for Chapter 11 in January -- is putting on a brave face saying it is developing a restructuring plan to make the telecom equipment manufacturer viable again. However, the grim global economy is driving another nail in Nortel's coffin.

Part of the dilemma is this: A sale of its well-performing carrier equipment business might generate enough money to keep the company going for a while, but without the unit, Nortel itself would struggle to become viable. The carrier equipment unit accounts for most of Nortel's sales. Nortel's metro Ethernet networks unit is also likely to be highly prized by companies looking to augment their offerings in that area. About 14% of Nortel's sales are recorded in the metro Ethernet networks unit.

The company has said it is working on a restructuring plan it will unveil in April. Helmed by CFO Pavi Binning, the plan must be approved in court. Nortel's president and CEO Mike Zafirovski has said the goal of the restructuring plan is to make Nortel into "a more focused, leaner, and more competitive company."

Various investment banking and equity firms as well as competitors have been trooping through the Canadian firm's facilities in recent weeks. The Wall Street Journal reported visitors include Nokia, Siemens Networks, Avaya, Cisco, and private equity firm Gores Group. Cisco reportedly isn't interested. Gores has several investments in telecom infrastructure companies.

Nortel has a long and storied history, starting with its founding as Northern Electric Manufacturing in 1895. Its stock market valuation once totaled more than all of Canada's largest banks combined. Like many other large communications equipment companies, Nortel has been squeezed in recent years by intense competition. It struggled through a series of accounting scandals a few years ago.

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