Ericsson beats Ottawa bidders for last big Nortel division

 

 
 
 
 
The company very nearly died in the wake of the 2001 tech recession but, thanks to timely intervention by Pat Dipietro – an executive with Vengrowth, a venture capital firm – SiGe survived.
 
 

The company very nearly died in the wake of the 2001 tech recession but, thanks to timely intervention by Pat Dipietro – an executive with Vengrowth, a venture capital firm – SiGe survived.

Photograph by: Wayne Cuddington, The Ottawa Citizen

OTTAWA — Global wireless giant Ericsson has scooped up the last big Nortel Networks operating division for $65 million U.S., completing a sweep of several major Nortel operations at rock-bottom prices.

The Swedish company won the Multi-Service Switch business in an auction that was kicked off last month with an opening tentative deal from two Ottawa technology executives.

Adam Chowaniec and Pat DiPietro had bid $39 million U.S. to buy the business, long known as the Passport business and a former Crown jewel of the company.

They had hoped to upgrade the product line with newer technology that helps phone companies and corporate customers bridge the gap to full Internet-based voice technology.

“We are very disappointed at the outcome,” Chowaniec said. “We thought we had a good shot to build an new anchor company with an Ottawa headquarter, but now that is not going to happen.

“Ericsson was obviously determined not to let it go. We hope we may have some opportunity to partner with them in the future.”

DiPietro said the group had assembled a strong team to drive the operation.

“We really wanted to do this,” he said. “We wanted to take a piece of Nortel in Canada and turn it into back into a global leader, but it just wasn’t to be.”

Ericsson said the deal, which is still subject to court approvals, brings access to a strong product portfolio and installed base in the data market segment while supporting the Nortel wireless lines it bought previously. It also gets Nortel business contracts and related patents.

While the Nortel multi-service business has declined in recent years, it still generated $350 million in business in 2009. Sales in the June quarter rose 12 per cent to $79 million and operating margins rose eight per cent to $29 million, compared with a year earlier.

The operation has 66 Canadian employees and about 180 more abroad, including a significant former Shasta product line in California. It also has about 80 contract staff.

The Chowaniec-DiPietro bid, backed by a California private equity investor, promised to hire 95 per cent of the employees.

DiPietro and Chowaniec negotiated a preliminary deal for the asset, which became the basis for other potential bidders to enter an auction.

Under U.S. and Canadian bankruptcy law, Ericsson is likely bound by the same hiring conditions.

John Luszczek, general manager of the Nortel multi-service switch business, said the Ericsson win was good news for customers, suppliers and employees.

“Our focus now is to work closely with Ericsson to ensure as seamless a transition as possible for our customers,” he said.

When Nortel Networks hit the wall in early 2009, Ericsson initially said that it was not interested in buying Nortel technology. But it subsequently spent $1.4 billion, grabbing the CDMA, LTE and GSM wireless businesses and the former LG-Nortel business in Asia.

The Nortel assets have already delivered strong results for Ericsson, boosting sales in the last six months when other company product lines slowed.

Nortel has raised $3.1 billion from Ericsson, Avaya, Genband and Ciena for businesses, which generated $10 billion in annual sales as recently as 2008.

The low prices have added to the growing pressure on thousands of creditors owed tens of billions of dollars, including bond holders, pensioners, suppliers and others.

A big patent portfolio, the Carling Avenue campus and some other assets still have to be sold.

Chowaniec is involved with several Ottawa technology companies including Zarlink and the former Tundra. DiPietro is a former Nortel executive who has financed numerous Ottawa-startup as a Vengrowth Capital managing partner.

The two men were involved in unsuccessful efforts to save Liquid Computing, a promising Ottawa startup that ran out of cash last year.

Nortel will pay Chowaniec and DiPietro a $2.5-million break fee to cover significant costs in preparing the original bid, which included legal costs in several jurisdictions around the world.

 
 
 
 
 
 

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The company very nearly died in the wake of the 2001 tech recession but, thanks to timely intervention by Pat Dipietro – an executive with Vengrowth, a venture capital firm – SiGe survived.
 

The company very nearly died in the wake of the 2001 tech recession but, thanks to timely intervention by Pat Dipietro – an executive with Vengrowth, a venture capital firm – SiGe survived.

Photograph by: Wayne Cuddington, The Ottawa Citizen

 
The company very nearly died in the wake of the 2001 tech recession but, thanks to timely intervention by Pat Dipietro – an executive with Vengrowth, a venture capital firm – SiGe survived.
What was once a strong benefit package for Nortel employees will be replaced with a bare-bones plan for its pensioners, with taxpayers picking up the difference.
 
 
 
 
 
 

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