Ciena’s Tweaked Terms Deliver Victory Over Desperate NSN for Nortel’s MEN Assets

On the surface, it appears that the bankruptcy judge presiding over the kerfuffle between Nokia Siemens Networks (NSN) and Ciena for the privilege of owning Nortel’s Metropolitan Networks (MEN) assets made his decision purely on legal and procedural grounds.

Then again, maybe not.

As reported by Bloomberg, U.S. Bankruptcy Judge Kevin Gross who is overseeing the liquidation of Nortel’s U.S. assets, ruled yesterday that NSN’s $810 million after-the-buzzer offer should be rejected.

Ciena, which formally had submitted the top auction bid of $759 million in cash and convertible notes, argued successfully that it already had begun work on combining the two companies subsequent to the November 22 auction.

Nortel had sided with Ciena in the post-auction fracas, asserting that allowing a bid after the conclusion of the auction would disrupt the sale of the company’s remaining assets – not that there are many in the corporate garage left to sell.

Even though the $810-million bid from NSN was too late, it wasn’t too little. At face value, and even taking into account a $21-million compensatory breakup fee Nortel would have been obligated to fork over to Ciena, the NSN bid appeared to represent a better deal for Nortel creditors.

What’s interesting is that the Ciena offer appears to have been tweaked yesterday in a hallway outside the courtroom. Quoting from a Reuters article:

That set up Wednesday’s fight in court, with Nokia Siemens and some creditors arguing the auction should be reopened, in part because Ciena’s convertible securities were overvalued.

After roughly seven hours of argument, testimony and cross-examination, Nortel’s attorney said his team had a reached a deal in the hallway outside the court that would lead to the withdrawal of the last major objection.

Withdrawal of the objections made that a near-certainty later on Wednesday.

U.S. bankruptcy court in Delaware and a Canadian court cleared the deal after simultaneous hearings, Ciena and Nortel said in separate statements.

To clear the last objection, Ciena agreed to change the pricing on its convertible securities under certain conditions.

“This increases the value to the estate,” said Jennifer Feldsher, an attorney with Bracewell & Giuliani, which was representing creditor Matlinpatterson Global Investors. “We withdraw our objection.”

Ciena’s pricing change to the convertible securities included in its bid appeared to represent a modification of its formal offer. The move triggered the ire of an attorney representing Nokia Siemens Networks. Quoting again from the Reuters report:

Nokia Siemens’ attorney, Gregg Galardi, was critical of the deal saying it appeared to allow Ciena to change its bid and Nokia Siemens should be allowed to as well.

“It sounds like there is a material change to the bid,” Galardi of Skadden, Arps, Slate, Meagher & Flom said. “If that doesn’t reopen the auction, I don’t know what does. We stand by that $810 million bid.”

Was it a material change to the bid? If so, would it have been grounds to reopen the auction?

Don’t ask me. Those are legal questions, and I have difficulty distinguishing torts from tarts. However, I do welcome the learned opinions of the razor-sharp legal minds that frequent this blog occasionally.

That debate might be fun to have, but it would be entirely academic. NSN has conceded defeat, and Ciena is getting Nortel’s MEN business, even if the stock market and many of its shareholders wish otherwise.

As for NSN, the joint venture between Nokia and Siemens seems as confused and conflicted as ever, even if its new CEO is talking a big game about his plans for market-share gains and world domination.

Putting aside yesterday’s courthouse dustup, how could NSN fail to put its best collective foot forward during the actual auction process? How badly disorganized does the company have to be if it can’t be ready with its auction strategy before and during, you know, the actual auction?

I wrote before that the timing didn’t favor an NSN bid for Nortel’s MEN assets. Even though NSN scrambled in conjunction with private-equity concern One Equity Partners, which manages $8 billion in assets for JPMorgan Chase & Co., it is now evident that this was a last-minute, slapdash effort. It makes one wonder about the strategic coherence behind everything else that NSN is cobbling together.

Meanwhile, we read that Siemens today took an impairment charge of €1.634 billion for its continued involvement with NSN. Considering that Siemens AG has reduced its direct exposure to information technology, and that it has said IT is “not a great place to be,” one might question how long it will continue to take charges on a joint venture that seems strategically misaligned with its own big-picture objectives.

My supposition is that the recent emphasis on expanding and extending NSN into cleantech and renewable-energy solutions might have been, at least partly, a concession to Siemens, which has a large energy-related business and considerable expertise in that area. At its core, though, NSN remains a telecommunications concern, and that’s not where Siemens sees its future.

Seemingly flailing and swaggering at the same time, NSN lurches unsteadily into an uncertain future.

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