John Paczkowski

Recent Posts by John Paczkowski

Nortel Does the Inevitable

It took far longer than expected, but Nortel has finally thrown in the towel. This morning the long-suffering telecommunications equipment maker filed for Chapter 11 bankruptcy protection. “Nortel must be put on a sound financial footing once and for all,” CEO Mike Zafirovski said in a statement. “These actions are imperative so that Nortel can build on its core strengths.”

Indeed. For Nortel, around whom the carrion birds have been circling, the move has been a long time coming. Nortel (NT) owes creditors about $3.8 billion. And with its first large bondholder payment coming due this week, the company had to do something. Sadly for shareholders, who will likely see their holdings all but wiped out, this was it. As a consequence of filing Chapter 11, Nortel will lose significantly more business, analysts say. And that could potentially send it into a death spiral. “Based on this filing, the board of directors must believe that not only is the fourth quarter bad, but that the first quarter is going to be just as bad or worse,” said Duncan Stewart, an analyst at DSAM Consulting in Toronto. “Although they have cash in the short term, even the medium-term outlook is not enough to make the company viable as a going concern.”

A grim and astonishing transformation for a company that at its peak in 2000 had a market cap of $250 billion.

Its market value today: about $159 million.