Nortel Insider – by Desk Jockey

Ever since it was revealed last week that Nortel was exploring bankruptcy options there has been much discussion, both internally at the company amongst concerned employees, and externally at sites like AAN. Understandably there is much anger, shock and dismay at these events, especially since Nortel had previously stated it is viable in the long term and was strengthening its position.

There are a few issues that people keep bringing up and we hope to dispel some of the myths concerning them.

1. Who leaked the story to the WSJ? Shouldn’t we find out who they are and make sure they are punished for disclosing company secrets in an obvious attempt to damage Nortel’s reputation and its stock price?

   What is important is not who leaked the story but rather that there is even a story in the first place.  When employees had earlier asked the executive about this very issue, the response was mum and dismissive, as it has always been for questions about serious issues affecting the entire company. 

   The fact that many in the leadership position seem to have been more concerned by the coverage of the story rather than the actual story itself, speaks volumes about their intent.  It only reinforces the notion that they are more worried about perception rather than fact.  Employees must trust their leadership in order to do their jobs effectively and it is hard to have trust when they are treated as incapable of handling the truth.

2. Isn’t this just Nortel being cautious and preparing for all possibilities? After all, isn’t this the prudent course of action given the current economic crisis?

   This is the counter argument most often heard when trying dismiss the WSJ story.  After all, just because one buys life insurance, it doesn’t necessarily mean that one believes one’s death is imminent, right?

   Unfortunately, this is a flawed analogy.  Buying life insurance and seeking bona fide legal counsel/advice on bankruptcy options are two very different situations and comparing them is like comparing the purchase of a doll house to an actual house, to use yet another analogy.  One does not see companies like Apple or Microsoft pursuing such courses of action even in the current economic climate.

   Furthermore, the solicitation of legal advise concerning bankruptcy is no trivial or everyday matter, as some have made it out to be.  It is a costly, time consuming process that is only undertaken when the possibility is real enough to warrant such an extensive procedure.

3. Nortel has responded to these negative news stories by saying they are a “viable partner for the long term,” and has continued to reiterate its commitment to reducing cost.  Doesn’t this mean anything that the company is being so forthright?

   Unfortunately, Nortel has been losing credibility ever since the accounting scandals of the early 2000’s perpetrated by the criminal Frank Dunn.  The current executive leadership rose to power by promising a change from the old ways and a commitment to integrity, however they have faltered during key events.  

   All of this has had the effect of further diminishing credibility.  With the release of this latest story, we have found out that the leadership has been telling employees and shareholders one thing, while doing another.  With this kind of track record, it is unfortunately hard to believe the written word, and every statement is taken with a grain of salt.  Only time (and the release of the FY2008 earnings in February) will tell the true story.

Please don’t hesitate to share your ideas concerning these topics.  Active discussion is needed for the healthy functioning of a company such as Nortel.

With all the bad news that Nortel has faced during the past week, including the very real possibility of bankruptcy and an NYSE delisting notice, it’s perhaps no surprise that some are wondering (and perhaps hoping) that Nortel will receive a bailout from the Canadian government. 

Certainly this is a possibility.  With the big auto makers getting proportional help from the federal and Ontario governments (contingent on the approval of the US auto aid package – who said Canada doesn’t follow America?), it’s no wonder that other industries, including the tech sector, are also lining up to ask the government for their handouts.  

In particular, the tech industry, represented by the Canadian Advanced Technology Alliance (CATA) is asking for a “$60-billion stimulus package”.  One can only assume Nortel is a member of CATA, since there are some 33,000 “high-tech executives and their companies” represented, and a search for Nortel and CATA turns up numerous links between the two.

We are split on our feelings about a Nortel bailout.  On the one hand, bankruptcy is more than a just a legal condition for the company if you are one of the many employees who have spent their entire career at Nortel.  These loyal and dedicated citizens stand to lose a lot if their pensions cannot be guaranteed in the event of insolvency, something we covered in a previous blog post. 

On the other hand, we cannot and will not support handouts to a management team that has repeatedly shown ineptitude towards basic business practices and has played more than a mere bystander’s role in the events that have led to Nortel’s current precarious position.  A bailout to Nortel would only reward those that have hastened Nortel’s demise and personally profited from it.  This is not fair.

We would like to see a measured approach.  A bailout or a low-interest loan should only be given out if the recepient company agrees to controls and conditions.  This would include possible leadership or BoD replacement.  However even this is overly ambitious and some questions arise: Who in the government should oversee all of this? And isn’t this just one more step to transforming a public company into a government sponsored or even government-owned enterprise?  Is this really good in the long term?

A more tenable plan would be to just guarantee employees’ pensions.  We aren’t sure if this already covered by law, but nonetheless even this plan would be very unpopular to taxpayers, many of which have already lost money on Nortel due to its indefensible collapse in share price.  Judging from the quality of comments in news articles about Nortel, it is clear that its reputation is tarnished beyond repair and thus any public effort to help the company is likely to be met with severe resistance. 

Whatever the outcome, one thing is for certain: Those reponsible will suffer the least, while those who will suffer the most will have had no part in the cause.  Such a shame that history must repeat itself.

This has been something that has been bothering us for quite some time: The increasing prevalence of trolls and NT pumpers/cheerleaders that have been flocking to All About Nortel in an attempt to suppress the plain and simple truth.  Their reasons are varied, but it usually boils down to a desire to cover up negative (but real) news so that they will not suffer a loss on the NT stock they made the mistake of purchasing.  In effect, they are trying to enact censorship to make up for their own personal losses and mistakes.

Their tactics are flawed for a variety of reasons, but the main one is that their objective could never really be fulfilled.  In their blind greed, they actually deceived themselves into thinking that AAN has a tangible effect on NT stock price.  To think that a single blog could affect NT is simply ludicrous! If this were the case, why wouldn’t they simply start up a blog of their own, All About Nortel, Good Stuff Edition? As you can see, their actions were not even consistent with their own maligned world view and thus all they accomplished was an unfortunate attempt to cover up the truth and distract others from it.

These trolls/pumpers/cheerleaders have used all manner of tactics in attempt to deceive others into buying NT and covering up the truth.  These have ranged from hateful rants laced with overt racism/homophobia, to childish name calling/profanity and even threats of physical violence against those that disagreed with them.  Furthermore, they have even accused AAN/Mark Evans of being culpable of stock price manipulation, something they themselves ought to held accountable for!  Others, not wanting to display overt hatred, “merely” offered their tacit support for those trying to destroy AAN.

Understandably, these personal attacks could not be allowed to continue.  And so this week the normally benevolent Mr. Evans put a stop to it by instituting moderation of comments on AAN. This move was understandable and we completely support him in this.  A blog is like one’s own home; while it may be open to the public at times, you must abide by the owner’s rules, and most people would agree that the tactics employed by these trolls have been anything but tolerable.  

As a final warning to these trolls or those who would follow them: Do not think that you can come to this blog (Nortel Insider) and “have your way” with it, like you attempted (but failed) to do with AAN.  We here at Nortel Insider will be far less forgiving than the kind hearted Mr. Evans when dealing with comments with such overt hatred in them.  They will be removed and you will be exposed for the fraud that you are.

With NT having traded below $1.00 per share for the past consecutive 30 trading days, the NYSE has exercised its right to notify Nortel of its obligation to meet exchange minimum standards for continued listing.  What this means is that Nortel has 10 business days to notify the NYSE of how it plans to solve this dilemma and ultimately six months to bring its average share price back above the $1.00 minimum.

This could not have come at a worse time.  With news of the bankruptcy exploration options fresh in people’s minds, it seems as though the endless stream of bad news will never end.  As it doesn’t seem that NT will make it back above $1 due to shareholder confidence, Nortel is left with one option if they wish to avoid a delisting: Another reverse split.

The last reverse split was made shortly after Mike Z. took command, and its move heralded a new age at Nortel.  With the 3-5 year plan, things were supposed to get better and the reverse split, approved by shareholders, was meant to be a signal that Nortel meant business and intended to maintain shareholders’ trust.  

But yet here we are a few years later with management seriously considering bankruptcy, with their only defence that “no filing is imminent”.  Even if shareholder did approve another 10-1 reverse split, this would only bring NT up to the $4-5 range, given current prices.  How long would this last for? Just three months ago, NT was above the $5 mark.  Furthermore, with a stock consolidation like this, the number of outstanding shares would fall from ~500 million to 50 million.  We are not sure what sort of minimums the NYSE has on the number of shares either and whether this will affect any decision to call for a reverse split.

If things continue as they are, NT will be relegated to an OTC stock.

Yesterday, it was revealed that Nortel has been exploring bankruptcy options and soliciting legal advice on the matter.  This stands in stark contrast to the message of “Business as Usual” that has been continually broadcast on the loudspeakers to employees.  While it is refreshing to see that management does have a grasp on reality, it is nonetheless very worrisome  that they have been pursuing these actions while telling a completely different story to customers and employees.

Even more depressing was the fact that Nortel PR attempted to get the WSJ, the organization that initially broke the news about the dealings, to pull the story.  This shows that management is more concerned with perception than reality and would like to have their dealings kept in secret for as long as possible.  We will say this: People want to know the truth, even if it hurts, sooner rather than later.  Trying to keep a house of cards propped up for as long as possible only hurts those who dwell within.

More incredulous, however, was the response to this story on AAN. Many simply could not believe it, and blindly lashed out at the WSJ as spouting “rumors” and also attacked those that “leaked” the story.  More important than who leaked it is the actual story itself – if there was a whistle blower, I applaud his/her actions to bring the truth to light.

Today is a sad day in the history of Nortel, and such days are seemingly becoming more frequent ever since September 17th.  We only hope things will turn out for the best, but at this point, that’s all we have to go on.