Nortel shares dive on bankruptcy advice report

Wed Dec 10, 2008 3:54pm EST
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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.   Continued...

<p>The Nortel logo is seen outside their head office in Toronto May 6, 2008. REUTERS/Mike Cassese</p>