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Nortel Scuttles MEN Sale, For Now

A Nortel Networks Corp. (NT) spokesman has confirmed that plans to sell Metro Ethernet Networks (MEN), one of the company’s most promising and profitable divisions, are on hold.

Executives are crafting a new business plan now that Nortel has declared bankruptcy and MEN could be part of the strategy for viability, Ryan Hill explained Wednesday in a brief commentary to several reporters, including those at xchange and VON.

“The MEN business is among the strongest in the industry with an installed base of over 410,000 network elements, and with ground-breaking technology and opportunities moving forward like 40G/100G,” Hill said.

Indeed, it makes the most sense for Nortel to cling to MEN for as long as possible – it’s still a revenue-generator. That’s why, when the struggling company announced last September it was seeking a buyer for MEN, analysts and long-time industry insiders were astonished.

“I’m shocked about it. I’m shocked that they would take, really, the only performing division they have and announce, publicly, an intent to sell it,” said Rick Malone, principal and co-founder of Vertical Systems Group, in a September interview with xchange. Such public proclamations, he explained, tend to attract bargain-basement offers.

“This is a surprising choice of units to divest,” Thomas Straub also told xchange. Straub is a nearly 20-year veteran of the telecom sector who now brokers relationships between network service providers and suppliers such as Nortel. The MEN unit, he said, still makes money, even though Nortel’s carrier customers have slowed spending.

“I just worry that [Nortel] may be trading off a short-term balance sheet issue against a key long-term strategic issue,” Straub said.

So, Nortel appears to be rethinking the MEN fire sale, and for good reason. And what prompted this change of heart? Only Nortel knows for sure. But one can speculate that after reportedly fielding several lowball offers for MEN, executives realized the unit is worth more to them as a long-term asset than as a source of instant, undervalued cash flow.


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