Once a high-flying darling of the technology sector and a stock market heavyweight, Nortel Networks filed for bankruptcy protection on Wednesday in both Ontario and Delaware.
The move came a day before the Canadian telecommunications company was due to make a $107-million interest payment on its debt.
The board of directors of North America's largest telecom equipment maker met in Toronto on Tuesday night to discuss the company's financial options. In a release, the company said the decision to file for protection was a unanimous move by its board.
The company said the process will allow it to deal with its cost and debt burden, restructure its operations and narrow its strategic focus.
While Nortel said it has about $2.3 billion in cash, it owes about $4.5 billion US in long-term debt.
"Nortel must be put on a sound financial footing once and for all," said president and CEO Mike Zafirovski.
"These actions are imperative so that Nortel can build on its core strengths and become the highly focused and financially sound leader in the communications industry that its people, technology and customer relationships show it ought to be," he said in a release.
Federal Industry Minister Tony Clement said the government will continue to work with Nortel during its restructuring through Export Development Canada, the government's export financing arm.
EDC has agreed to provide up to $30 million US in 30-day financing, although that hinges on a court granting EDC some security over the assets of Nortel's Canadian units.
'A bit of a cushion'
Colin Cieszynski, an analyst with CMC Markets Canada, said Nortel's current cash level means the company can continue operations without the risk of running out of money, as General Motors had suggested when it appealed to the U.S. government for financial aid.
"[Nortel has] got a bit of a cushion that, hopefully, will be able to get them through this process, and they can come out a stronger company on the other side," he said.
Some watchers of Nortel believe the company will wind up being sold off in pieces.
"As a whole, I don't see any buyer coming out and saying, 'I want to buy Nortel together,'" said Vijay Jog, a corporate finance professor at the Sprott School of Business at Ottawa's Carleton University. "It hasn't worked with Nortel management, why would it necessarily work with new management."
Duncan Stewart, financial analyst for DSAM Consulting, said he expects some assets will be sold, but he doesn't expect many jobs will be cut at the company.
"Nortel has already cut from 100,000 employees to [25,000]," he said. "So I don't think we're going to see a lot more job cuts."
In Ottawa, some Nortel employees expressed concerns for the future of their company.
"It's a sad situation, it really is," said Dave Hesidence, who works in business development. "It's a wonderful company, it's a Canadian icon. It's a shame it's come to this."
In Montreal, some Nortel employees who work in the company's research division hoped they would keep their jobs.
"I think our division will be sold over the next month so we should not care about Nortel but more who will buy us," said product engineer Marco Poulin outside the company's offices in Ville St-Laurent. Prof. Tamas Michel Koplyay from the University of Quebec in the Outaouais said the research arm of Nortel may be less affected by layoffs compared to other parts of the company such as marketing and human resources.
He said that could be good news for Ottawa and Montreal where many research jobs are based.
"If the company is going to have any value at all on the market, you have to keep the future in mind," said Koplyay, who is also the director of research for the country's largest high-tech association, the Canadian Advanced Technology Alliance.
After being halted for the announcement, Nortel resumed trading at 11 a.m. ET, opening at eight cents, before closing at 12 cents. That was down from Tuesday's close of 38.5 cents.
The TSX said it was reviewing Nortel shares with respect to the exchange's continued listing requirements.
Cieszynski said shareholders will most likely be left with little in a Nortel reorganization, pointing to similar results from bankruptcy protection filings by Air Canada and Stelco earlier this decade.
At its peak during the heyday of the technology boom, Nortel shares got as high as $124.50 a share, or $1,245 after factoring in the 10-for-one stock consolidation the company undertook in late 2006.
After the credit protection filing, Dominion Bond Rating Services lowered its ratings on Nortel's stock from CCC to D.