Nortel files for bankruptcy as shares plummet 76 per cent
As the country falls further into a pit of economic despair, America’s leading manufacturer of telephone equipment, Nortel Networks Corporation has declared itself bankrupt, filing for bankruptcy only one day before an interest payment of $107 million was due to be paid.
The move comes after shares in the corporation dropped by 76 per cent and this has led Nortel to call for bankruptcy protection within the United States. The company employs around 95,000 people around the world, 2,000 of those being employed within the United Kingdom. However, the company are attempting to calm their employee’s nerves by announcing that Nortel was “still very much in business and our commitment to our customers remains unwavering”. However, Nortel have announced that they will be dealing with their presence in countries outside Canada in “due course”.
The President and CEO at Nortel, Mike Zafirowski, said that the move was the best thing that Nortel could have done in their position, saying, “I am convinced that by choosing this path at this time, we can put Nortel on sound financial footing once and for all.” Zafirowski went on to announce that the move should allow Nortel to “emerge from this process as a more focused, financially sound and competitive company”.
The company has not had a good run of late, and on top of the drastic decline in the price of their market shares the company has recorded a loss of around $7 billion and due to this has had to lose 18 per cent of its employees.
A spokesman for the firm has stated that the company has been undergoing changes since 2005, however the company is now putting the bankruptcy claim down to the current economic crisis.
An analyst at DSAM Consulting in Toronto, Duncan Stewart, claims that the filing highlights the impending trouble the company was facing, saying, “Based on this filing, the board of directors must believe that not only is the fourth quarter bad, but that the first quarter is going to be just as bad or worse. Although they have cash in the short term, even the medium-term outlook is not enough to make the company viable as a going concern.”
The company highlighted their need to take a step back to sort out their issues, saying, “The company acted now because we have sufficient liquidity to both run our operations and restructure our business,” to which Zafirowski added, “Nortel must be put on a sound financial footing once and for all.”
“The company commenced a process to turn around and transform Nortel in late 2005, and the company made important progress on a number of fronts. However, the global financial crisis and recession have compounded Nortel’s financial challenges and directly impacted its ability to complete this transformation. Nortel is taking this action now, with a 2.4 billion dollar cash position, to preserve its liquidity and fund operations during the restructuring process,” stated Nortel.
Leave a Comment