Nortel defends Ericsson deal, CEO to depart soon

As Ericsson’s purchase of Nortel’s LTE and CDMA assets comes under scrutiny, the Canadian firm’s CEO Mike Zafirovski is set to depart soon, while the company gears up for its next unit sales – for its enterprise division, and then the LG-Nortel joint venture.

Zafirovski was brought in from Motorola in 2005 to turn around a company that was, even then, suffering from the aftershocks of financial scandals, and the gathering storms of market contraction and tough competition.

He said in an interview with the Ottawa Citizen: “Obviously I’m not going to be a CEO of a residual company dealing with patent assets and claims”. This gave weight to speculation that Nortel would try to emerge from Chapter XI bankruptcy protection as a rump firm focused on its extensive patents portfolio. It also had the whiff of rats leaving the sinking ship, and Zafirovski said he had already been approached for CEO posts at other companies. “We wanted a great transformation and gave it one hell of a run,” he said. “We were on the verge of one, but the world turned upside down.”

Nortel had to defend its Ericsson deal in front of a special hearing of a Canadian parliamentary committee last week – against arguments from RIM and others that it is undermining Canadian national security by selling key technologies abroad, and that it is giving away patents and other assets that were partly funded by the taxpayers.

During the hearing on Friday, Nortel’s chief strategy officer, George Riedel, said the company had never received any R&D tax credits for its LTE and CDMA technologies, having been disqualified because of its losses after 2001. The firm said it had spent about $350 million on developing LTE technology, mainly in 2008-9.

Most of the patents are not included in the Ericsson deal but could become the core of a new company, or sold separately, with RIM an interested party. Riedel said his firm was working with the courts on a “fact-based approach … Do we keep some or do we sell them all? I don’t know the answer yet.”

Meanwhile, Nortel will receive preliminary bids in mid-August for its controlling stake (50% plus one share) in LG-Nortel, which is profitable and could attract private equity or vendor interest. The JV did not file for bankruptcy protection.
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