MatlinPatterson’s Nortel Squeeze Play

Nortel’s astonishingly dramatic disintegration, preceded by years of pathological dysfunction and executive-level incompetence — not to mention egregious neglect from a docile board of directors — is like a horrific, slow-motion car crash that draws the morbid fascination of rubber-necked onlookers.

In the form of leveraged buyout firm MatlinPatterson Global Advisors — described by some as a “vulture fund,” which doesn’t seem an approbatory sobriquet — we now have ambulance-chasing lawyers on the scene of the wreck, looking for a way to squeeze some money from the tragedy.

Ostensibly, MatlinPatterson is portraying itself as Nortel’s savior, a white-knight acquirer that will save the company from the fate of dismemberment and divestment of its faltering business units. Is that really what MatlinPatterson is trying to accomplish, though? Are they a noble defender of all that was great and good about Nortel?

Let’s get a few things straight.

Essentially, MatlinPatterson is a chop shop. It doesn’t build companies. Instead, it buys distressed assets, of which Nortel undoubtedly qualifies, dresses them up and tries to extract as much as possible from subsequent buyers.

What’s more, MatlinPatterson holds $400 million in Nortel bond debt, giving it a significant vested interest in Nortel’s ultimate disposition as a salable property or properties.

As a substantial Nortel debtholder, MatlinPatterson was dissatisfied with the $650-million bid that Nokia Siemens Networks made for Nortel’s wireless assets, which account for about 25 percent of the company’s sales and include its CDMA and LTE technologies and patents.

Nortel’s executive team and board are committed to selling not just its wireless business unit, but also its Metro Ethernet and enterprise assets. Once those are gone, that’s it, the show is over.

Clearly Matlin Patterson believes the market, as evidenced by the bid from Nortel Siemens Networks for Nortel’s wireless assets, is not adequately valuing what Nortel has to offer.

As a debtholder in a company that is moribund, MatlinPatterson is playing the grim hand it has been dealt. Pay no attention to MatlinPatterson’s hollow rhetoric about reviving Nortel and bringing it back to a semblance of glory. It’s too late for that, and MatlinPatterson, shrewd exploiters of distressed assets, know precisely what time it is.

“It’s very much a Humpty Dumpty story and we’re beyond the point at which anyone can hope to keep all of the various pieces together under Nortel’s banner,” said Carmi Levy, an independent technology analyst based in London, Ontario.

“I think what they (Matlin) are trying to do is they are trying to measure the market for what the potential value would be for wireless, for Metro Ethernet and for enterprise,” said Levy.

Indeed. That’s exactly what’s happening.

MatlinPatterson is trying to get more from Nortel Siemens Networks, and it’s also positioning to get more from the tire kickers that have been warily circling Nortel’s enterprise and Metro Ethernet assets.

MatlinPatterson isn’t serious about engineering a Nortel comeback, but it is serious about trying to salvage as much as it can from a fallen company in which it has significant exposure.

With Designs on Consumers, RIM Faces Tough Fight

For years, Research in Motion has made its reputation and its money with its line of BlackBerry smartphones, which overwhelmingly are used for business messaging, primarily email.

RIM, first to market with elegant “push” email to mobile devices, supported by the enterprise-grade encryption and corporate email integration of its BlackBerry Enterprise Server (BES), quickly established technology and market leadership over Microsoft and others in mobile business messaging.

Now, though, to drive further market growth and support the upward trajectory of its stock price, RIM has been determinedly seeking to expand beyond mobile business messaging. It has designs on the consumer space, where email is a secondary concern (if a concern at all), and where sleek product design, seamless support for video and audio, and — above all else — consumer-oriented applications and content drive adoption.

While RIM leads technologically and in the marketplace in the realm of mobile email for business users, it is not a dominant consumer brand. Apple — and even Nokia and Samsung, among others — have more strength as consumer brands.

There’s no question that the iPhone is coming on strong in the smartphone space, with the market surge predicated on the strength of Apple’s consumer-friendly AppStore — packed with more than 50,000 third-party applications, the vast majority of which are consumer-oriented, and its more than one billion downloads. RIM remains ahead of Apple in smartphone market share, but one could easily contend that RIM has less growth ahead of it than does Apple.

So, RIM is making its consumer push with the BlackBerry, introducing new BlackBerries, designed with consumers rather than business users in mind. The key to RIM’s consumer success, however, will be whether it can win the hearts and minds of developers and creators, which provide applications and content to consumers, respectively.

That’s why RIM’s BlackBerry App World is so crucial to its consumer success. RIM has approximately 2,000 applications on App World, a far cry from the comparatively astronomical number accrued on the App Store for the iPhone. What’s more, while RIM has attracted some consumer applications to the BlackBerry App World, the site still has more of a business skew, in tone and substance, than does Apple’s App Store.

RIM has considerable work to do if it is to match Apple and others in considerable appeal. It’s early for the BlackBerry App World, of course, but Apple isn’t standing still, and the iPhone and other devices likely will have more cache in developing markets.

Applications and content will drive consumer adoption of next-generation smart phones. RIM has a tough fight ahead.

Questions in Air at Allen and Co. Media Summit

I just wonder, after years of feting MySpace and Facebook and Twitter, whether the media industry’s largest companies and their investment bankers will realize that most Web 2.0 entities are muddled fringe players.

The next well-hyped social-networking site probably isn’t the prescription for all that ails the media industry, which admittedly needs to think carefully about the creative and not-so-creative destruction that technological innovation has wrought.

Such introspection and deliberation, however, are unlikely to lead to acquisitions of dodgy startup companies that have no idea how to generate revenue or profits.

The big media companies — most of them, anyway — still possess brands that have greater commercial value than anything a Web 2.0 startup could bring to the table. In most instances, the ideas and technologies behind those web startups are not patentable intellectual properties. Barriers to entry are minimal, and sustainable technological advantage usually isn’t a practical consideration.

The solutions to many of big media’s problems can’t be bought from boutique investment bank. Media’s titans need to think through their dilemmas, realistically look ahead at how demographics and technological evolution will continue to roil their once-peacebale waters, and then devise practical strategies that leverage their brands and partnerships to best effect.

They can remedy at least some of the problems they created for themselves. They don’t need to throw money at media neophytes who will bring a different set of problems along with them.

Viable Product or Service First, Then PR

The New York Times ran a feature article today in its business section ostensibly about how the nature of public relations has changed in an epoch no longer dominated by print and broadcast media.

In the era of Web 2.0 phenomena such as Facebook, Twitter, and blogging, public relations must adopt new strategies and tactics to remain relevant and effective, reporter Claire Cain Miller suggested.

It’s an interesting thought, and there’s some merit to the argument.

But to these jaded eyes, the story seemed a cleverly devised advertising vehicle for Brooke Hammerling and her company, Brew Media Relations. As the story unfolds, the writer grapples less with big questions about media and promotion and focuses more on how Hammerling seems to know everybody in Silicon Valley and beyond.

Still, at one point in the story, light shines through. Talking about a company called MobShop that she promoted in 2001, Hammerling notes that it got “more press than I’ve ever seen,” but that it still died.

Said Hammerling:

“It shows that P.R. can’t be the end-all and be-all,” she says. “Everyone knew who they were, but at the end of the day, they couldn’t make any money.”

Whatever one thinks of the remainder of the story, that’s a nugget to take away and remember.

One can attempt to polish and shine a ball of dust, but it will never be a diamond. Similarly, technology executives can mount an aggressive public-relations campaign, getting somebody such as Hammerling to attract the notice of various industry grandees and media potentates, but public relations – no matter how it’s executed –cannot and will not, in and of itself, make a technology business successful.

Public relations, whether aimed at new-media bloggers or old-media newspapers and magazines, can help spread the word about a new product or service; but it is incapable of creating a good product or service.

At the end of the day, a company must have a product or service that delivers value to customers, be they consumers or businesses. If it doesn’t have that, all the PR in the world won’t make a difference.

Yes, PR can draw attention to a company, and to its product or service, but that’s all it can do. Once customers investigate the company in question, they’ll make their own decisions as to whether the product or service on offer has value or utility. If they decide the offering is irrelevant to them or of poor quality, the PR payoff will have been negligible and fleeting.

Even Web 2.0 companies need to keep that in mind. Before launching the PR salvos, they should start with a well-defined product or service that delivers tangible value to a clearly identified target market, sometimes known as cusotmers. They should do the market research, submit to the discipline of rigorous product management, and come up with a well-qualified creation. Then, they ought to try to devise a sustainable business model, one that ensures ongoing revenue and profitability. This tends to be the hard part, especially for Web 2.0 companies, as evidenced by the chronic business-model struggles of putative success stories such as Facebook and Twitter.

When all that is sorted, these fledgling companies will be ready to take their messages to the world, or to that part of the world that will care about what they’ve created. Then, and only then, should they unleash the media-relations hounds. If they make that move too early, they might get some exposure, which tends to gratify egos, but they will not see meaningful business benefits.

After all, nobody wants to end up like MobShop.