Ericsson Wins Auction for Nortel Assets, RIM Still Interested

The dismantling of Nortel Networks is continuing, with Ericsson winning the auction for the bankrupt company’s wireless business for $1.13 billion and Research in Motion officials saying they are still interested in other Nortel assets.

Ericsson won the bidding for Nortel’s CDMA (Code Division Multiple Access) wireless business and LTE (Long Term Evolution) assets the same week that Avaya announced a $475 million “stalking horse” bid for Nortel’s enterprise division, which includes Nortel’s UC (unified communications) and government businesses.

The auction for the CDMA and LTE technologies was July 24 in a New York City law office, and Ericsson was announced as the winner July 25. Nokia Siemens Network in June announced a $650 million stalking horse bid, which set the minimum price for the Nortel business.

Also reportedly included in the bidding was MatlinPatterson Global Advisors, a Nortel creditor, which had spoken with Nortel officials about buying the entire company or developing a plan to restructure the company rather than selling off its assets.

Nortel filed for Chapter 11 bankruptcy protection earlier this year, and officials—who had pointed to the global recession as a key reason for the bankruptcy filing, saying it derailed a restructuring initiative in place for several years—at the time talked about continuing that restructuring strategy. However, officials have since decided instead to sell off its businesses, with the sale to Ericsson the first in several steps.

"The anticipated sale of our CDMA business and LTE Access assets to Ericsson for $1.13 billion represents a very positive prospect for our customers who will be able to continue their relationships with a long term partner; for employees who will have new opportunities at Ericsson and for many of our other stakeholders,” Nortel President and CEO Mike Zafirovski said in a statement. "Nortel remains focused on finding the right buyers for our other businesses while continuing to maintain excellent customer service levels. We are determined to maximize value while preserving innovation platforms, customer relationships and jobs to the greatest extent possible. With today's agreement and through the anticipated sales of the Company's other businesses, Nortel will leave its mark on the industry for decades to come."

The sale, which still needs the approval of U.S. and Canadian bankruptcy courts and various regulatory agencies, will expand Ericsson’s footprint in North America, according to President and CEO Carl-Henric Svanberg.

"Acquiring Nortel's North American CDMA business allows us to serve this important region better as we build relationships for the future migration to LTE,” Svanberg said in a statement. “Furthermore, by adding some 2,500 highly skilled employees, of which about 400 are focused on LTE research and development, Ericsson reinforces and expands a long-term commitment to North America. This deal, along with our recently announced Sprint service agreement, truly positions Ericsson as a leading telecoms supplier in North America.”

Ericsson in June announced a $5 billion managed services deal in which it will take over the day-to-day running of Sprint’s wired, CDMA and iDen networks for the next seven years. Ericsson will take on 6,000 Sprint employees as part of the deal.

Nortel's North American CDMA operations generated about $2 billion in revenue in 2008, according to Ericsson. Officials said they expect that research and development costs in CDMA will be low.

Ericsson's North American business generated $2.7 billion in sales in 2008. Coupled with the Sprint services agreement, the Nortel deal will make North America the largest region within Ericsson, with about 14,000 employees.

Meanwhile, RIM officials said they were disappointed to be kept out of the bidding for Nortel’s CDMA and LTE businesses. In a statement July 20, Jim Balsillie, RIM's co-CEO, said he had hoped to keep Nortel’s assets within Canada—both Nortel and RIM are Canadian businesses—in deals that also would help RIM expand its wireless capabilities.

However, according to Balsillie, the BlackBerry maker tried to submit a bid for the CDMA and LTE businesses, but was told it could do so only if it agreed not to bid for other Nortel assets for at least a year. RIM officials have said they are interested in other Nortel assets.

In a statement following the auction, RIM officials said they still hold out hope of acquiring some Nortel assets, noting that Canadian government officials have said they will look into the deal with Ericsson.