August 10, 2009 / 1:34 PM / in 8 years

UPDATE 1-Nortel CEO steps down, board to shrink

* Zafirovski steps down as CEO effective immediately

* Board to shrink from nine to three directors

(In U.S. dollars unless noted)

TORONTO, Aug 10 (Reuters) - Nortel Networks NRTLQ.PK said on Monday its chief executive would step down immediately and its board would shrink from nine directors to just three as the bankrupt telecom equipment maker sheds its major assets.

The departure of CEO Mike Zafirovski had been expected for some time since Nortel filed for court protection from creditors at the start of this year.

The three remaining directors are John MacNaughton, Jalynn Bennett and David Richardson, who will serve as chairman, Toronto-based Nortel said.

No replacement was announced for Zafirovski, although the company will seek court approval for its monitor, Ernst & Young Inc., to take a bigger role in overseeing its business. As well, it will see U.S. court approval to appoint a “principal officer,” it said.

Zafirovski joined Nortel in late 2005 after holding the post of president and chief operating officer at Motorola Inc MOT.N. Many investors and analysts had hoped he could accomplish what no other executive could before him: turn Nortel into a consistently profitable and stable company.

Instead, Nortel filed for protection from creditors in January, blaming the economic downturn for derailing its turnaround efforts.

It has since started selling its major business lines, including a recent $1.13 billion deal to sell wireless assets to Sweden’s Ericsson (ERICb.ST).

Nortel’s enterprise unit is also up for sale and has received a $475 million “stalking horse” bid from Avaya Inc, though higher offers may still emerge.

Reporting by Wojtek Dabrowski; Editing by Frank McGurty

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