Nortel files for bankruptcy, shares plunge

[sajiv]

TORONTO (Reuters) - Nortel Networks Corp, North America's biggest telephone equipment maker, filed for bankruptcy on Wednesday, hoping to save a once highflying business whose decade-long decline has accelerated with the global economic crisis.

The filing marks a crucial stage in the slow deterioration of one of Canada's most prominent companies. Nortel, a stock market darling before the tech bubble burst and still one of the country's largest employers, has struggled for years in an industry that has changed radically since Nortel's heyday in the late 1990s.

Analysts said Nortel will have to shed assets -- likely at rock-bottom prices -- in its fight for survival. The company will likely cease to exist in its current form, they said.

A sharp slowdown in many of Nortel's major markets, especially the United States, has exacerbated its long-standing problems competing with low-cost rivals. The company warned last month that its business was under increased pressure, and its cash position and liquidity were deteriorating.

"It's obviously a remarkable transformation from where it was as the largest company in Canada worth about 35 percent of the (Toronto Stock Exchange) in 2000," said Gavin Graham, director of investments at BMO Asset Management in Toronto.

"But this is a reflection of the way that the telecommunications industry has changed."

Telecom companies have slashed spending on the equipment that Nortel makes as the global economy has cooled. But for years the company has faced intense competition from North American and European rivals such as Alcatel-Lucent and Ericsson, as well as Asian vendors such as Huawei Technologies.

The shares have tumbled along with the company's fortunes, sinking into penny-stock territory in recent months. In mid-2000, at the zenith of the company's success, they were worth more than C$1,100 each, adjusted for a stock consolidation that took place in late 2006.

On Wednesday they plunged more than 60 percent to 15 Canadian cents on the Toronto Stock Exchange. The exchange said it was reviewing the stock for possible delisting.

"AVOIDING SLOW DEATH"

Before the stock market opened on Wednesday, Nortel said it and a number of its affiliates filed for Chapter 11 bankruptcy protection in the United States, giving it time to reorganize. It also filed for protection in Canada, and some of its European subsidiaries are expected to make similar filings.

"They're avoiding a slow death by doing this," UBS analyst Nikos Theodosopoulos. "The company is going to have to sell assets and change its focus. It's not going to be the same company."

The filing came a day before the Toronto-based company was due to make an interest payment of about $107 million.

"Based on this filing, the board of directors must believe that not only is the fourth quarter bad, but that the first quarter is going to be just as bad or worse," said Duncan Stewart, an analyst at DSAM Consulting in Toronto.

"Although they have cash in the short term, even the medium-term outlook is not enough to make the company viable as a going concern."