TORONTO (Reuters) - Nortel Networks Corp shares fell about 25 percent on Wednesday after a Wall Street Journal report that North America's biggest telephone equipment maker has sought legal advice on a bankruptcy protection scenario in the event that its restructuring plan fails.
Facing a slowdown in demand and tougher competition, Nortel has also been exploring potential assistance from the Canadian government, the newspaper reported.
A Nortel spokesman told Reuters "no bankruptcy filing is imminent," but added the company has engaged advisers to help it plot out its future. He declined to say whether any of those advisers were bankruptcy experts.
Shares in the Toronto-based company fell 16 Canadian cents to 48 Canadian cents on the Toronto Stock Exchange and skidded 14 cents to 38 cents in New York. In mid-2000, they were worth more than C$1,100 each, adjusted for a stock consolidation that took place in late 2006.
"Nortel is a company that has more debt than it has cash, is cash flow negative, and whose pension obligations are almost certainly rising in current capital markets," said Duncan Stewart, an analyst at DSAM Consulting in Toronto.
"For them not to be talking with bankruptcy experts would be imprudent, foolish, unwise -- pick a word."
Nortel has faced intense competition from North American and European rivals such as Alcatel-Lucent, as well as low-cost Asian vendors such as Huawei Technologies. The company has also suffered as telecom companies scale back spending on the equipment that Nortel makes.
The global economic slowdown has made Nortel's problems much larger, leading it to warn last month that because of current conditions, its business is under pressure and its cash and liquidity are deteriorating.
The Wall Street Journal cited people familiar with the situation for its report on the bankruptcy protection study, and it cited a person familiar with the situation for its report on the possibility of seeking government aid.
A spokeswoman for Canadian Industry Minister Tony Clement said Nortel has not made any public statements regarding a bailout and "it would be inappropriate for the government of Canada to comment on decisions taken by a private sector company or speculate on possible outcomes for particular corporations."
The Nortel spokesman said the company had no debt maturity until 2011 and was preserving and strengthening its cash position.
Last month, Nortel reported a $3.4 billion quarterly loss, cut its 2008 outlook and announced 1,300 layoffs, about 5 percent of its staff. It also said it would freeze salary increases, cut back on consultants and review its real estate portfolio.
Nortel has lost billions of dollars and cut tens of thousands of jobs since the technology bubble burst at the beginning of this decade.
It has been unable to recover since then, with its problems exacerbated by the global economic slowdown.
RBC Capital Markets analyst Mark Sue said in November that Nortel will have to rely on asset sales to fund its battered operations and risks running out of money and collapsing under its debt load before 2011. He cut his target price on Nortel shares to zero.
Reporting by Wojtek Dabrowski, and Susan Taylor and Louise Egan in Ottawa, and Eric Yep in Bangalore; editing by Rob Wilson