Feds won't block sale of Nortel's wireless unit
TORONTO - Ottawa has found no reason to block the US$1.1-billion sale of bankrupt Nortel Networks wireless assets to Sweden's LM Ericsson either under Canadian investment rules or out of national security concerns, Industry Minister Tony Clement said Wednesday.
Speaking after the close of markets, Clement accused the political opposition to the deal as "dangerous" protectionism.
"It is not the time to close up, to give up or to put up barriers around the country," Clement said.
"Canadians don't accept that."
He said the Liberals initially appeared to support the sale, then decided to wrap themselves "in the flag of patriotism."
"The problem is it is not the flag of patriotism, it is the flag of protectionism," Clement said.
"If we change the rules for Nortel, then we subject ourselves to changed rules involving Canadian companies who are investing overseas . . . so it's a very dangerous game that (Liberal Leader) Michael Ignatieff is playing, not in the best interests of this country."
The insolvent Canadian high-tech icon, once thought of as too big ever to fail, went into bankruptcy protection in January and has been selling its main businesses piece by piece to raise as much money as possible to pay off creditors.
Ericsson won an auction to buy the wireless division, which researches and develops products for advanced wireless telecom devices. The Swedish company hopes to close the deal next month.
While Ericsson bid US$1.13 billion for the Nortel assets, Clement said the "book value" of the deal was determined to be $182.5 million -- or US$149 million -- well short of the review threshold of $312 million dictated under under the Investment Canada Act.
Book value, the net worth of a company based on its balance sheet, may not coincide with market value and is therefore an unreliable guide to what a corporation or asset is worth. In Nortel's case, the auction in which several companies bid in private raised the price of the wireless unit to nearly double the initial offer.
Clement argued that even if new investment rules were to be applied to the proposed sale, the result would be the same. He also dismissed calls for basing a review on the purchase price, rather than the book value, saying purchase price had never been used to set a threshold under the act.
The sale, which courts in Canada and the U.S. have approved, would be "very beneficial" to Canada, he said.
"Ericsson has a strong track record in the sector and a sustained commitment to R&D in Canada," Clement said.
"It has the resources and the customer base necessary to bring Canadian innovation to market."
The company has operated in Canada for 56 years, invested more than $2 billion in research and development in the country in the past decade with plans to increase its R&D spending by 50 per cent. The company also employs more than 1,900 Canadians, and is offering jobs to 800 Nortel workers who form the bulk of employees of the domestic wireless division.
Blackberry maker Research in Motion has also complained that it was blocked from bidding, but Clement said there was no substance to the assertion, noting the courts have signed off on the deal.
The minister also dismissed complaints that public funds went into Nortel's development of two key wireless technologies -- the Code Division Multiple Access or CDMA and the new Long-Term Evolution or LTE which is expected to become the wireless standard around the world.
Under the sale, Nortel will retain its ownership of its LTE patents while the CDMA patents will be part of the deal with Ericsson.
Last week Nortel sold its enterprise unit -- the division that makes telecom systems for businesses -- for US$900 million to New Jersey-based Avaya Inc. In addition, Avaya agreed to pay $15 million to an employee retention program.
An auction that concluded early Monday resulted in privately held Avaya agreeing to pay almost double the amount of its "stalking horse" bid of $475 million for the unit, which supplies phone systems and other communications equipment to businesses and large organizations, including government agencies.
Clement would not say whether the Avaya transaction would be reviewable by Industry Canada but noted a court in Delaware on Wednesday rejected a complaint from communications giant Verizon about the proposed sale.
Nortel will now turn its attention to the planned auction of its Metro Ethernet Networks business, which some analysts said could fetch up to $1.5 billion. A date has yet to be set for the auction or the submission process.
The company's ethernet division is considered one of its strongest assets because it includes the rights to technology that enhances the speed and capacity of current fibre optic networks by as much as 10 times. Faster connections are highly lucrative as more people watch video and transfer large files online.
If all the sales go through, the once mighty Nortel, a company that once dominated Canada's high tech sector, could be reduced to a patent-holding company for its wireless LTE technology.