Posted by: Olga Kharif on July 21, 2009
On July 20, BlackBerry maker Research In Motion disclosed that “it has effectively been prevented from submitting an offer for the Nortel Networks Wireless Business.” The assets are likely to be auctioned off on July 24. So far, there has only been one official bid, from Nokia Siemens Networks, but more bids could arrive before 4 p.m. EST today.
RIM claims that it “was told it could be qualified [for the auction] only if it promised not to submit offers for other Nortel assets for a period of one year.” Nortel, which is going through a bankruptcy proceeding, currently has five businesses up for sale. “Despite repeated efforts, Nortel, its advisors and its court-appointed monitor have rejected RIM’s repeated attempts to engage in meaningful discussions,” according to RIM.
Nortel denies any wrongdoing. “Nortel has engaged with a number of potential bidders, including RIM,” the company says in a statement. “Other parties moved expeditiously to comply with the court approved procedures to become a qualified bidder. It was not until July 15, 2009 that RIM submitted a letter to Nortel asking to be a qualified bidder and since that time, Nortel has diligently attempted to work with RIM on acceptable confidentiality terms relating to Nortel’s valuable intellectual property assets, but RIM refused to comply with the court approved procedures. Notwithstanding RIM’s statement today, Nortel continues to be willing to provide RIM with the opportunity to participate in the auction and even without RIM’s participation believes that an active auction will result in maximizing the value of Nortel’s assets.”
RIM claims it may be prepared to bid $1.1 billion, nearly double the amount offered by Nokia Siemens Networks. The BlackBerry maker’s statement seems to imply that the company will either submit a bid today, or possibly even commence a legal action that could keep the wireless businesses tied up for months. RIM hasn’t responded to a request to comment on its immediate plans.
What puzzles me is exactly why RIM would want Nortel’s wireless assets. Today, devices are RIM’s main focus, and that razor-sharp focus seems to serve the company well. “….we find it difficult to understand why RIM would want to enter the infrastructure [market] given its lack of scale/experience as well as lower industry margin structure,” UBS analyst Maynard Um wrote in this morning’s note.
The wireless infrastructure market is super-competitive, with much-larger, experienced players like Ericsson, Nokia Siemens Networks and Alcatel-Lucent jockeying for every carrier contract that comes up. Plus, the Nortel gear lines that are being auctioned off this week are legacy products, which will be replaced with newer gear in the next several years. And the winning bidder won’t receive many of the most crucial wireless patents that Nortel owns.
Perhaps RIM hopes to receive an infusion of funds from the Canadian government for taking the ailing division on. After all, the officials have promised $300 million to Nokia Siemens. Still, if it takes the funds, RIM will have to promise to keep most Nortel jobs. All in all, this seems like the wrong reason to buy the assets.