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.

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