Optimism Rises for Nortel Unit Sell-offs

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Rival gearmakers Tellabs (TLAB), Cisco Systems (CSCO), and Ciena (CIEN) could be in the running as well, analysts speculate. And Nokia Siemens Networks, which submitted an unsuccessful bid for the operations that were sold to Ericsson, could still bid for other Nortel units. Gearmaker Sonus (SONS) could seek to acquire Nortel's remaining business—providing equipment to carriers.

Parliament Probes RIM Complaint

Meanwhile, some of Nortel's patents might lure buyers. BlackBerry maker Research In Motion (RIMM) may be seeking to acquire about 3,000 patents, many related to wireless network technology. In June, Ehud Gelblum, an analyst at JPMorgan Chase (JPM), estimated that one portfolio of patents may be worth as much as $2.9 billion. In the past, Zafirovsky expressed hopes that Nortel could keep the patents and simply license them to companies like RIM. Now a sale of the patents is a real possibility. "We look forward to having very comprehensive discussions with RIM and other interested buyers," Zafirovski says. He says carriers and other high-tech companies have expressed interest in the patent portfolio.

On July 20, RIM said it "has effectively been prevented" by Nortel in bidding for the company's wireless businesses. On Aug. 7, the Industry Committee of the Canadian House of Commons held a hearing to review the allegations and it expects to investigate the matter further this week. Zafirovski says his departure is "absolutely not" related to the RIM scuffle.

After Zafirovski makes his exit, Nortel's business units will report to Chief Restructuring Officer Pavi Binning. The company's mergers-and-acquisitions teams will continue their work under Riedel. The company will seek court approval for bankruptcy monitor Ernst & Young to take on a greater role in overseeing the business and forthcoming sales. The company's board will now be headed by David Richardson, a former chairman of Ernst & Young (Canada), where he specialized in corporate restructurings.

Known as a turnaround guru, Zafirovski arrived at Nortel in late 2005 after helping Motorola (MOT) gain renown and market share with the popular Razr phone. By the end of 2005, Nortel was already burdened with $3.9 billion in long-term debt and was fighting with more powerful rivals for market share. The recession hit sales and threw a wrench into Zafirovski's turnaround plans. "In his defense, he inherited a company with a tremendous debt load," says Abner Germanow, a director at consultant IDC. "It's difficult to say," he continued, how much of Nortel's problems stemmed from business decisions vs. "bad market conditions and tough debt markets."

Kharif is a senior writer for BusinessWeek.com in Portland, Ore.

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