Wednesday, January 14, 2009

The bigger they are, the harder they fall …

… and few companies have fit that description better than Northern Telecom. Simply Nortel in recent years, the corporation that was the backbone of more than half of the telephone receivers and switching equipment in Canada and the United States has filed for bankruptcy in both countries, to avoid paying a crippling loan payment of $100 million. While the company has about $2.3 billion cash on hand, it is actually barely worth a $¼ billion on paper yet owes more than 20 times that. Even more breathtaking, Nortel once traded at a whopping $1265 a share (after factoring in a reverse split of 1 for 10 a couple of years ago). Today’s close: 12 cents; a drop of 99.9905%.

The problem in my opinion: They should have stuck to what made them famous and improved on that. Instead they scooped up one company after another in leveraged buyouts, then got caught when the marketplace was simply saturated with fibre optics products. And of course, they got caught up in serious accounting irregularities.

A truly sad day for Canada – a homegrown success story that turned bust. What will we say to our children, if Nortel winds up being sold off to a foreign competitor – Alcatel or Nokia for instance? We barely have a railroad anymore – what if we don’t have a telecommunications firm to call our own? No bailout but we must ensure it stays in Canadian hands. Obviously, there are going to be big job losses on top of what there already have been so that's not good news either.

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