bankruptcy

Nortel’s Zafirovski wants his golden parachute

Many, many Nortel retirees are in danger of losing their retirement benefits and severance payments as Nortel slowly slides into oblivion. Some of them would certainly face true financial hardships if this were to happen. Given the salary he has drawn over the last four years, former CEO Mike Zafirovski is probably not one of those vulnerable former employees. However, he is suing Nortel for his golden parachute.

Zafirovski was supposed to be the leader who turned around Nortel’s fortunes. Hired in 2005, he came on board with a five-year plan to help the Canadian tech giant rediscover its magic touch. He had some good tools to work with: a huge and loyal install base, good engineering talent, a strong brand name.

But fortune didn’t smile on the Zafirovski era. Nortel muddled along for three years. Then the economy took a nosedive and Nortel went bankrupt. Now rival companies are circling the Nortel carcass, biting off chunks of the business for $1 billion here and $500 million there. Zafirovski parted ways with Nortel in August. He left the company in such a state that it no longer even needs a CEO. The board of directors is letting the financial executives handle the final bloodletting and  breakup of the once proud company.

Zafirovski is fighting to make sure he gets compensated for his leadership. According to the Ottawa Citizen, he is seeking more than $12 million worth of bonuses, pension payouts and severance. Just a few months ago, he was fending off such lawsuits from former Nortel employees. Now he’s in line with the rest of them.

Nortel Auction: Siemens was edged out by a $15 million nose

Toronto’s The Globe and Mail newspaper reported today that Siemens Enterprise Communications fell just $15 million short of beating out Avaya for Nortel’s enteprise division.

What the paper calls Siemens is probably more accurately described as a joint venture between private equity firm Gores Group and Siemens AG, who together own Siemens Enterprise Communications. Gores Group owns the controlling interest. Those two firms were reportedly working together to bid on the Nortel enterprise division.

If Gores and Siemens won,  the plan was to create a new company that combined Siemens’ market presence in Europe with Nortel’s presence in North America into a company that remained headquartered in Canada and offered a strong alternative to Avaya and Cisco, so says The Globe and Mail. In backroom negotiations with Nortel and the Canadian government that kicked off a year ago, before Nortel’s bankruptcy, Siemens had said that it would relocate its own headquarters from Munich to Toronto as part of the merger. Once the bankruptcy auction got underway, Siemens remained at the table.

But ultimately Siemens fell $15 million short of Avaya’s $900 million bid this week. Also, while Avaya’s offer was all cash, Siemens’ offer included $700 million in cash cash with an IOU for the rest. Apparently Siemens was trying to work out a loan from the Canadian government to help pay for the Nortel merger. The government backed away from those loan talks when Canada’s other major tech firm, Blackberry-maker Research In Motion, started grumbling about the prospect of Nortel selling off all of its various divisions to foreign companies, The Globe and Mail reported.

This has to be disappointing news to Canadian technophiles who have always had justifiable pride in Nortel’s status as the nation’s top tech firm. Now, the Globe and Mail reports, Avaya will ship all top executive jobs of Nortel’s enterprise division south of the border, probably to… gasp… New Jersey. And the paper says Avaya will probably cut 25% of Nortel’s workforce, including layoffs of 400 of 1,000 employees at plants in Ontario.

Nortel enterprise business set to go to Avaya for $500 million?

According to the Canadian newspaper The Globe and Mail, Nortel is close to selling its enterprise unit for $500 million. The paper says Avaya is the leading bidder, but Siemens-Enterasys could emerge as the buyer if Avaya backs out. Both bidders are interested in Nortel’s enterprise customers more than its technology.

If Avaya seals the deal, it will suddenly find itself in the data networking market with Nortel’s line of enterprise routers and switches. It’s unclear whether it would hold onto those assets or try to spin them off to a third party. Depending on who you talk to, Nortel owns about 3% to 4% of the network switching market. If Siemens-Enterasys emerges as the winner, it will have find itself with some redundant product lines which will require some rationalization.

It looks like Nortel will purge some of its lower level executives before handing over the division to a buyer. www.ITbusiness.ca is reporting that Nortel laid off the senior UK staff who were leading Nortel’s unified communications partnership with Microsoft, known as the Innovative Communications Alliance. The partnership was formed in 2006 and expires next year. It’s been on shaky ground since Nortel entered bankruptcy.

Nortel auction: Avaya or Siemens-Enterasys will bid for UC business

Nortel is breaking apart.

The former crown jewel of Canada’s high-tech industry revealed today that it will sell off its CDMA and LTE wireless telecom infrastructure division to Nokia Siemens Networks (NSN) for $650 million. Nortel also revealed that it will sell of the rest of its assets. According to reports, the CDMA division generates $700 million in annual revenue, which means means that NSN will make back its money inside of a year. NSN has also established a low bar for the sale of all of Nortel’s other business units.

A sale of Nortel’s enterprise telephony and unified communications businesses is will probably follow soon. A couple months ago at VoiceCon Orlando, there was plenty of buzz circulating that Avaya and Siemens-Enterasys were both looking to acquire Nortel’s UC business. Neither of them, according to rumors, are interested in technology. Instead, they want the customer base.

A company that’s only looking for access to installed customers might not be willing to pay much for Nortel’s UC division. However, NSN’s $650 million deal with Nortel is so shockingly low that it has certainly driven down Nortel’s asking price for its UC business. The only question now is whether the price has been pushed low enough for Avaya or Siemens to pull the trigger. If that happens, Nortel customers will find themselves with two choices: They can accept whatever incentives the winning bidder offers Nortel customers to buy into their own products, or they can start looking elsewhere.

Retired Nortel executives look to buy company out of bankruptcy

Reports out of Canada say that a team of former Nortel executives hope to raise money in order to buy the company out of bankruptcy and keep it more or less intact and under Canadian ownership.  Former Nortel president Robert Ferchat, 74, leads a group that also includes former chief marketing officer Ian Craig and retired Nortel vice-president David Mann. It might be more accurate to call Ferchat the former president of Northern Telephone, since that was what Nortel was called back in 1991 when Ferchat last worked there.

Ferchat told the Ottawa Citizen that his group hopes to raise at least $1 billion US from investment banks in order to buy Nortel through the bankruptcy courts.

Meanwhile, Nortel’s current executives are still trying to sell off the company’s top business units. But Nortel CEO Mike Zafirovski’s efforts have been undermined because no one is willing to pay very much for them.  For instance, Nortel sold its application delivery buisness to Radware in February for just pennies on the dollar. Nortel originally acquired that business when it bought Alteon for about $6 billion in 2000. Radware paid just $17.5 million to take the Alteon business off Nortel’s hands.

I’ve heard rumors that Avaya and especially Enterasys-Siemens  are interested in buying Nortel’s enterprise communications business, but they are more interested in gaining access to Nortel’s customers than actually owning Nortel’s technology. How much are they willing to pay when they can simply try poaching nervous customers (and partners)?

Nortel channels Guns & Roses: Just a little patience

The executives of Nortel have been walkin’ the streets at night

Just trying to get this bankruptcy right.

It’s hard to see the future with Cisco and Avaya around

You know they don’t like being stuck in that crowd

Customers think this waiting is lame.

They just don’t have time for this game.

But Nortel needs another month or two

To restructure.

Yeah, restructure.

Just a little more tiiiiime. Yeah.

Indeed, Nortel is asking the courts - and its wary customers - for just a little more patience.

Last month at VoiceCon, dozens of Nortel customers gathered at a special session entitled “I’m a Nortel customers. What do I do now?” At the session, customers peppered Nortel Enterprise president Joel Hackney with pointed questions about the future of the company. Hackney was candid in many of his responses, but quite often he deferred his answers. He assured customers that in May customers would get more answers, for May was the month that Nortel would file its restructuring plans in Canadian and U.S. courts.

Now we learn that Nortel and its court-appointed bankruptcy monitor, Ernst & Young, are asking the courts for an extension to July 30. Nortel customers will just have to find a little more patience for the ailing vendor, or they may want to do what many Nortel customers did at VoiceCon this year: Get to know the other players on the market.

Nortel employees respond to VoiceCon coverage

Last week I wrote a story about a special VoiceCon session for Nortel customers, entitled “I’m a Nortel Customer. What do I do now?” It was one of the more widely read articles I’ve written for SearchUnifiedCommunications. Nortel customers are very passionate about the company. They love Nortel’s products. But it’s clear that many of them are disappointed in the leadership of the company. Now it’s clear that some Nortel employees share that disappointment.

I’ve received emails from several Nortel employees since my story was published last week. Given that they are still working for the company, I’ve granted them anonymity. Their comments are below.

This first comment is a direct response to the news that Nortel canceled some severance payments to employees who were laid off before the company entered Chapter 11 bankruptcy protection. A customer had asked Joel Hackney, president of Nortel’s enterprise division, why customers should trust a company that reneges on such a commitment. Hackney responded by saying that Nortel had to meet its obligations to customers and suppliers before honoring its commitment to former employees. One Nortel employee had this to say:

I am truly perplexed no one asked how Mr. Hackney justified “reneging on its commitment to those former employees” while he, as one of eight executives, set themselves up with a $7.1M Key Executive Retention Package (KERP) while Nortel is in Chapter 11.

Another long-time Nortel employee wrote to me about her general disappointment in the company’s leadership.  She said her employment with Nortel will end later this year and she fears that her pension and retirement health benefits will be lost. She said she had high hopes for the company when it started mining General Electric’s executive suite for new leaders in 2005, such as Hackney, Chief Procurement Officer Don McKenna and Executive Vice President for Corporate Operations Dennis Carey.

For 4 years these guys met short term targets by cutting costs which usually was done at the expense of shrinking the workforce. They persistently cut R&D which has always been the hallmark of Nortel’s business philosophy.

I never saw a vision nor any leadership from this group.  They came in saying that Nortel played in too many markets and yet never had the courage to cut away or sell business units in order to build upon a fewer number.

They persisted in paying themselves big bonuses and now at this late stage they are still using Nortel resources to ensure themselves a big piece of whatever assets are left via quarterly retention bonuses.

I was proud to work at Nortel. Too bad I didn’t have the foresight to see what was coming.  I might have been able to protect myself a little better.