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Nortel: Nortel to Sell Optical Networking and Carrier Ethernet Businesses

^{Published on 2009-10-07 04:58:33 - Market Wire}
 

TORONTO, ONTARIO--(Marketwire - Oct. 7, 2009) - Nortel(1) Networks Corporation (OTCBB:NRTLQ) today announced that it, its principal operating subsidiary Nortel Networks Limited (NNL) and certain of its other subsidiaries, including Nortel Networks Inc. and Nortel Networks UK Limited, have entered into a "stalking horse" asset sale agreement with Ciena for its North American, Caribbean and Latin America (CALA) and Asian Optical Networking and Carrier Ethernet businesses, and an asset sale agreement with Ciena for the Europe, Middle East and Africa (EMEA) portion of its Optical Networking and Carrier Ethernet businesses for a purchase price of US$390 million in cash and 10 million shares of Ciena common stock. Based on the closing price of Ciena's common stock on NASDAQ on October 6, 2009, the shares to be issued by Ciena have a current market value of approximately US$131 million, bringing the implied total value of the purchase consideration to approximately US$521 million. The agreements with Ciena do not provide for any adjustment of the share consideration for stock price fluctuations prior to closing, and Nortel will be subject to certain resale restrictions in respect of the Ciena shares.

These agreements include the planned sale of substantially all assets of the Optical Networking and Carrier Ethernet businesses globally, including Nortel's OME 6500, OM 5000 and CPL platforms, its industry-leading 40G/100G technology, and the related services business. The agreements also include all patents and intellectual property that are predominantly used in the businesses, and provide for the transition of substantially all of Nortel's Optical Networking and Carrier Ethernet customer contracts.

Under the terms of these agreements and subject to any changes that may occur through the stalking horse and sale process, at least 2,000 employees (more than 85 percent of the global Optical Networking and Carrier Ethernet employee base) would be offered employment with Ciena. This includes employees assigned to the Optical Networking and Carrier Ethernet businesses in certain EMEA jurisdictions who would transfer to Ciena by operation of law.

"Today's announcement is a positive step forward for the future of Nortel's Optical Networking and Carrier Ethernet customers and employees," said Philippe Morin, president, Metro Ethernet Networks, Nortel. "The sale of these businesses to a strong and stable buyer enables the innovation of one of the foremost leaders in the optical industry to continue to thrive."

"Employees have done a tremendous job stabilizing our business under challenging conditions while continuing to deliver on product and service commitments. We are particularly pleased that the agreements would offer a significant number of the employees in the Optical Networking and Carrier Ethernet teams an opportunity to continue their world-class innovation," said Morin.

Nortel's Optical Networking business is the leader in next-generation 40G/100G optical technology and one of the largest providers of optical networking equipment in the world, having deployed 430,000 optical nodes to over 1,000 customers in more than 65 countries worldwide. Nortel's ability to send 40G traffic over today's existing 10G networks allows service providers to quadruple bandwidth capacity without the need for new fiber deployments or complex network re-engineering. Nortel has secured 52 wins to date for its 40G optical solution and has announced eight successful field trials for its 100G equipment planned for availability later this year.

Details of Sale Process

Nortel will file the stalking horse asset sale agreement with the United States Bankruptcy Court for the District of Delaware along with a motion seeking the establishment of bidding procedures for an auction that allows other qualified bidders to submit higher or otherwise better offers, as required under Section 363 of the U.S. Bankruptcy Code. A similar motion for the approval of the bidding procedures will be filed with the Ontario Superior Court of Justice. Following completion of the bidding process, final approval of the U.S. and Canadian courts will be required.

In relation to the EMEA entities to which they are appointed, the UK Joint Administrators have the authority, without further court approval, to enter into the EMEA asset sale agreement on behalf of those relevant Nortel entities. In some EMEA jurisdictions, this transaction is subject to information and consultation with employee representatives prior to finalization of the terms of sale.

In addition to the processes and approvals outlined above, consummation of the transaction is subject to the satisfaction of regulatory and other conditions and the receipt of various approvals, including governmental approvals in Canada and the United States and the approval of the courts in France and Israel. The stalking horse asset sale agreement and the EMEA asset sale agreement are also subject to purchase price adjustments under certain circumstances.

Share Value

As previously announced, Nortel does not expect that the Company's common shareholders or the NNL preferred shareholders will receive any value from the creditor protection proceedings and expects that the proceedings will result in the cancellation of these equity interests.

About Nortel

Nortel delivers communications capabilities that make the promise of Business Made Simple a reality for our customers. Our next-generation technologies, for both service provider and enterprise networks, support multimedia and business-critical applications. Nortel's technologies are designed to help eliminate today's barriers to efficiency, speed and performance by simplifying networks and connecting people to the information they need, when they need it. For more information, visit Nortel on the Web at [ www.nortel.com ]. For the latest Nortel news, visit [ www.nortel.com/news ].

Certain statements in this press release may contain words such as "could", "expects", "may", "should", "will", "anticipates", "believes", "intends", "estimates", "targets", "plans", "envisions", "seeks" and other similar language and are considered forward-looking statements or information under applicable securities laws. These statements are based on Nortel's current expectations, estimates, forecasts and projections about the operating environment, economies and markets in which Nortel operates. These statements are subject to important assumptions, risks and uncertainties that are difficult to predict, and the actual outcome may be materially different. Nortel's assumptions, although considered reasonable by Nortel at the date of this press release, may prove to be inaccurate and consequently Nortel's actual results could differ materially from the expectations set out herein.

Actual results or events could differ materially from those contemplated in forward-looking statements as a result of the following: (i) risks and uncertainties relating to Nortel's Creditor Protection Proceedings including: (a) risks associated with Nortel's ability to: stabilize the business and maximize the value of Nortel's businesses; obtain required approvals and successfully consummate pending and future divestitures; successfully conclude ongoing discussions for the sale of Nortel's other assets or businesses; develop, obtain required approvals for, and implement a court approved plan; resolve ongoing issues with creditors and other third parties whose interests may differ from Nortel's; generate cash from operations and maintain adequate cash on hand in each of its jurisdictions to fund operations within the jurisdiction during the Creditor Protection Proceedings; access the EDC Facility given the current discretionary nature of the facility, or arrange for alternative funding; if necessary, arrange for sufficient debtor-in-possession or other financing; continue to have cash management arrangements and obtain any further required approvals from the Canadian Monitor, the U.K. Joint Administrators, the French Administrator, the Israeli Joint Administrators, the U.S. Creditors' Committee, or other third parties; raise capital to satisfy claims, including Nortel's ability to sell assets to satisfy claims against us; maintain R&D investments; realize full or fair value for any assets or business that are divested; utilize net operating loss carryforwards and certain other tax attributes in the future; avoid the substantive consolidation of NNI's assets and liabilities with those of one or more other U.S. Debtors;
attract and retain customers or avoid reduction in, or delay or suspension of, customer orders as a result of the uncertainty caused by the Creditor Protection Proceedings; maintain market share, as competitors move to capitalize on customer concerns; operate Nortel's business effectively under the new organizational structure, and in consultation with the Canadian Monitor the U.S. Creditors' Committee and a proposed U.S. Officer, and work effectively with the U.K. Joint Administrators, French Administrator and Israeli Joint Administrators in their respective administration of the EMEA businesses subject to the Creditor Protection Proceedings; continue as a going concern; actively and adequately communicate on and respond to events, media and rumors associated with the Creditor Protection Proceedings that could adversely affect Nortel's relationships with customers, suppliers, partners and employees; retain and incentivize key employees and attract new employees, as may be needed; successfully implement Nortel's new organizational structure to most effectively continue with the sales of Nortel's businesses and complete integration processes with acquiring companies and continue with Nortel's restructuring activities; retain, or if necessary, replace major suppliers on acceptable terms and avoid disruptions in Nortel's supply chain; maintain current relationships with reseller partners, joint venture partners and strategic alliance partners; obtain court orders or approvals with respect to motions filed from time to time; resolve claims made against Nortel in connection with the Creditor Protection Proceedings for amounts not exceeding Nortel's recorded liabilities subject to compromise; prevent third parties from obtaining court orders or approvals that are contrary to Nortel's interests; reject, repudiate or terminate contracts; and (b) risks and uncertainties associated with:
limitations on actions against any Debtor during the Creditor Protection Proceedings; the values, if any, that will be prescribed pursuant to any court approved plan to outstanding Nortel securities and, in particular, that Nortel does not expect that any value will be prescribed to the NNC common shares or the NNL preferred shares in any such plan; the delisting of NNC common shares from the NYSE; and the delisting of NNC common shares and NNL preferred shares from the TSX; and (ii) risks and uncertainties relating to Nortel's business including: the sustained economic downturn and volatile market conditions and resulting negative impact on Nortel's business, results of operations and financial position and its ability to accurately forecast its results and cash position; cautious capital spending by customers as a result of factors including current economic uncertainties; fluctuations in foreign currency exchange rates; any requirement to make larger contributions to defined benefit plans in the future; a high level of debt, arduous or restrictive terms and conditions related to accessing certain sources of funding; the sufficiency of workforce and cost reduction initiatives; any negative developments associated with Nortel's suppliers and contract manufacturers including Nortel's reliance on certain suppliers for key optical networking solutions components and on one supplier for most of its manufacturing and design functions; potential penalties, damages or cancelled customer contracts from failure to meet contractual obligations including delivery and installation deadlines and any defects or errors in Nortel's current or planned products;
significant competition, competitive pricing practices, industry consolidation, rapidly changing technologies, evolving industry standards, frequent new product introductions and short product life cycles, and other trends and industry characteristics affecting the telecommunications industry; any material, adverse affects on Nortel's performance if its expectations regarding market demand for particular products prove to be wrong; potential higher operational and financial risks associated with Nortel's international operations; a failure to protect Nortel's intellectual property rights; any adverse legal judgments, fines, penalties or settlements related to any significant pending or future litigation actions; failure to maintain integrity of Nortel's information systems; changes in regulation of the Internet or other regulatory changes; and Nortel's potential inability to maintain an effective risk management strategy.

For additional information with respect to certain of these and other factors, see Nortel's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2009 and June 30, 2009 and Annual Report on Form 10-K for the year ended December 31, 2008 and other securities filings with the United States Securities and Exchange Commission. Unless otherwise required by applicable securities laws, Nortel disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

(1)Nortel, the Nortel logo and the Globemark are trademarks of Nortel Networks.