Another Nortel Idea
Market capitalization has sunk even lower than my last post on news that Nortel management had engaged the services of a bankruptcy law firm and on receiving NYSE reminder notice of the requirement to have stock valued at more than $1 per share within the next six months or face delisting. Today, Moody's lowered Nortel's bond ratings amid speculation that the company will not be able to raise the necessary debt to fund the company's operations in this hard and cold winter. It seems that Nortel will join other venerable brands such as General Motors which both seem to have lost their way and may not be able to survive the winter.
There are plenty of Monday morning quarterbacks questioning past decisions and blaming execution which compounds the problem.
I think the management team should buy out the shareholders and delist. With only $200 million (a 23% premium over the current market cap of $163 million at $0.3278/share) which the company can clearly afford – the balance sheet has $2.4 billion of cash onhand (plus another $300 million in short term investments which hopefully aren't in Mortgage Backed Securities) as of 30 September 2008. It is a vote of confidence in the future of this company – and then reset the budgets accordingly.
The market is unfairly penalizing Nortel's prospects. It's rating the chances that the corporate debt that will be renegotiated in 3 years will be renegotiated, at zero.
On a side note:
Have you read the company's annual report lately?
There is the statement of the 2007 Restructuring Plan. Then the statement of the 2006 Restructuring Plan. Then the statement of the 2005 Restructuring Plan. Then the statement of the 2004 Restructuring Plan. Then the statement of the 2003 Restructuring Plan. Then the statement of the 2002 Restructuring Plan. Then the statement of the 2001 Restructuring Plan. Yikes. All these restructuring plans do is account for the impairments and lay off expenses.
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