In separate statements, the two companies said on Saturday Ericsson had won the bidding for Nortel’s key CDMA and next-generation LTE wireless technologies, which Nortel put on the block after it filed for creditor protection in January.
The assets include Nortel’s businesses in the CDMA wireless technology used in North America and in the emerging LTE high-speed wireless technology that many of the world’s biggest operators plan to use to upgrade their telecommunications networks, as well as some patents.
“This is both a sad story for Nortel and a happy story for Ericsson,” Jeff Kagan, an independent telecom industry analyst, said in a note. “Rather than competing with Nortel, Ericsson has won.”
He said the deal would enable the Swedish telecom gear maker to expand its North American footprint as the industry evolves toward so-called 4G LTE technology. When fully developed, the technology is expected to provide broadband-like access for cell phone users in terms of speed and content richness, Kagan said.
Ericsson’s offer virtually assures Nortel will be broken up rather than emerge from bankruptcy protection as a slimmed-down single unit.
“I believe this is the right outcome at this point in time,” Richard Lowe, president of Nortel’s carrier operations, told Reuters in an interview on Saturday. “An orderly disposal of the assets of Nortel is the best outcome for the stakeholders.”
Toronto-based Nortel, once North America’s biggest maker of telephone gear, filed for bankruptcy protection early this year, blaming the economic crisis for derailing a turnaround effort that began in 2005.
That followed several rounds of attempted reorganizations and years of job cuts that slimmed the company down to 25,000 employees, from a peak of about 90,000 at the height of the technology boom at the start of the decade.
Shares in the company, which once had a market capitalization of over $250 billion, have fallen to almost nothing, and Nortel said it did not expect existing shareholders to receive any value from the latest sale.
“While today’s auction is a significant step in the overall sale process, it is not the final step,” the company statement said. “Nortel will work diligently with Ericsson to close the sale later this year.”
Lowe, who will serve as chief operating officer of Ericsson’s CDMA operations, said Ericsson planned to keep at least 2,500 jobs in the wireless operations, or some 80 percent of the current staffing levels. Closing the deal was his first priority, he said.
Ericsson was a late entry in the three-horse race for the Nortel wireless assets, with a bid that Canadian media put at $730 million. Friday’s 12-hour auction, held in a New York law office, showed how desirable the assets were, Lowe said.
The two other bidders in the auction were Nokia Siemens Networks, which last month put in a “stalking-horse” bid for the assets for $650 million, setting a floor price for potential buyers.
Private equity firm MatlinPatterson had offered $725 million, and there had been talk that BlackBerry maker Research In Motion might want to partner with it.
RIM said it was also chasing a deal for the Nortel technology, although it said Nortel had effectively blocked an approach valued at $1.1 billion.
Nortel said RIM was refusing to comply with common confidentiality provisions that other bidders agreed to follow.
Even before the economy hit the skids, Nortel posted billions in losses. But its job cuts, asset sales and reorganizations were not enough to offset a plunge in demand for its products from corporate clients and from wireless carriers that use its technology to operate their networks.
Rivals like Alcatel and Lucent consolidated as Nortel sat on the sidelines, while Asian competitors captured market share with their lower-cost offerings.
The company was once the poster child in Canada for high- tech success and was the most heavily weighted stock on the Toronto Stock Exchange. Its shares on a consolidation-adjusted basis were worth more than C$1,100 each in mid-2000.
The proposed sale is subject to joint of approval of U.S. and Canadian courts, scheduled for July 28. Auctions for other Nortel assets will follow.