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Judging from the press accounts, there is a gathering of the media and chattering class ravens perching with the gargoyles on the Canadian Parliament’s Peace Tower, figuratively and in some cases literally looking down at Nortel that has all the appearances of going through its death throes.

 

Cawing at a storied Canadian firm in a morality play, who committed the sins of becoming too big and arrogant, too fast too soon, and who failed in its expected patrician duties of looking after retirees and those let go.

 

Tut-tutting quietly, in the Canadian way, that Nortel (News - Alert) did after all hire an American as its present CEO. As if all the blame for the firm’s bad decisions and mismanagement of the past several years can be placed on his shoulders.

 

Waiting by the ravens were the vultures, those invaluable recyclers of fresh flesh, looking for great deals on the best assets. On Friday June 19 Nortel agreed to sell substantially all of its CDMA business and LTE Access to Nokia (News - Alert) Siemens for US$650 million.

 

The agreement with Nokia Siemens specifies that at least 2,500 employees would have the opportunity to continue with that buying firm. It said this represents a significant portion of the employees associated with the assets being sold. In addition to announcing this sale agreement, Nortel said it is advancing in its discussions with external parties to sell its other businesses. The company will assess other restructuring alternatives for these businesses in the event it is unable to maximize value through sales.

 

Nortel will also apply to delist from trading on the Toronto Stock Exchange and expects that the creditor protection proceedings will ultimately result in the cancellation of these equity interests. Trading in such shares on the TSX is expected to be suspended pending the TSX’s decision on the delisting application.

 

A day earlier Nortel boss Mike Zafirovsky had all the appearance of a doomed man struggling to keep alive, as he faced the Members of Parliament who make up the House Standing Committee on Finance.

 

Heather Scoffield of The Globe and Mail wrote: “The sudden severity of the global credit crunch forced Nortel Networks to file for credit protection, cancel severance pay, and slash pension benefits in a desperate bid to survive, a defensive chief executive Mike Zafirovski told hostile MPs yesterday.

 

“Wiping trickles of sweat from his forehead and complaining of the heat in a stuffy House of Commons committee room, the CEO of Nortel Networks Corp. told the story of how his company went from among the most prominent corporations in Canada earlier this decade to a firm begging Ottawa for help to make ends meet.

 

The decision to file for creditor protection on Jan. 14, and the consequent decision to pay $45-million in bonuses to executives and remaining employees, “was the most painful and agonizing in my 43 years of business,” Mr. Zafirovski reportedly said.

“We really did not believe there was any other option.”

 

The Nortel CEO, who originally hails from Macedonia – his family emigrated to the U.S. in 1969 – and who came to the company in 2005 after heading up Motorola (News - Alert), recounted how he lost his own family’s skin in the game. The newspaper said that last year, he had so much faith in the company’s future that he had invested his sons’ college tuition fund in Nortel shares. But when the credit crunch intensified last fall, “‘then, we frankly hit a wall,’” he said.

 

Zafirovsky attempted to get across to the MPs and to the public via the media that the bonuses were critical in his firm’s situation and in a highly competitive industry, to retain key employees and prevent unwanted levels of attrition. The objective was to preserve value and to maximize assets for the company’s stakeholders. Nortel’s plans, which he stressed that he is not a beneficiary of involved significant input from the court-appointed monitor for when the firm went under creditor protection, and negotiation with creditor committees.

 

On the severance issue he said Nortel, the firm’s board and him personally, looked at this issue extensively and considered numerous alternatives to consider scenarios that involved the payment of severance. Yet in light of the economic reality of the company’s constrained cash resources in Canada and the competing claims of the company’s other creditors, he said it simply wasn’t feasible to pay severance. The decision was made after extensive consultation with outside financial advisors and the monitor. 

 

On the pensions Nortel had still paid commuted values out at 100 percent based on an exception in the legislation prior to creditor protection filing but starting in January 2009, reduced the commuted value to approximately 86 percent which was based on the estimated deficits shown in the last filed valuations as at December 31, 2006. 

 

Unfortunately, since the last filed valuations, Zafirovsky explained that the deficits have grown as a result of well-reported declines in equity markets. Nortel has consulted with its actuarial advisors and believes that the deficit is currently closer to 69 percent as of December 31, 2008.

 

Nortel therefore sought the court authorization to reduce the commuted value payout to a percentage that more accurately reflected the current funding levels. The reduction the CEO said was not designed to prejudice anyone but rather meant to ensure equal treatment of members and former members.

 

The Globe and Mail reported that the CEO had initially turned down an invitation from the House of Commons finance committee to appear before MPs to explain why Nortel could afford to pay bonuses but not severance and pensions. But he relented earlier this week, and spent an hour on the ‘hot seat’.

 

The House committee agreed June 2 to invite terminated and retired Nortel employees to speak about the severance and pension issue.

 

New Democratic Party MP Thomas Mulcair sought the meeting, saying that the most senior managers at Nortel “are granting themselves enormous bonuses, whereas employees cannot even get their severance pay because the company is headed toward bankruptcy”.

 

Creditors, he said may only receive 33 cents on the dollar in the event of bankruptcy. If this amount was set at 31 cents on the dollar, all employees would receive their severance pay. This has an enormous impact on the organization of their severance pay, together with their eligibility or non-eligibility for employment insurance. This is the kind of problem we may well be facing.

 

The NDP MP said the issue covers many parts of the country, where there are ex-Nortel employees, and crosses party lines. He had spoken to Daryl Kramp, the Conservative member who represents the Belleville, Ontario area, which has a much-shrunken but still operating Nortel plant, who had informed him that there are several thousands of former Nortel employees and retirees in his district.

 

“We can at least hear those employees and examine the situation,” said Mulcair. “If we subsequently decide that this has to be reported to the House and that it requires specific legislative amendments, we’ll then have to take another step and determine which committee will act, if any.”

 

The federal government, will likely let Nortel perish. Zafirovsky told Parliament, reports the Globe and Mail, that he asked for help, talking frequently with Finance Minister Jim Flaherty and Industry Minister Tony Clement, among others, he said. But no support was granted in time to stave off the filing for protection from creditors.

 

And as shown by the Nokia Siemens (News - Alert) deal, to save Nortel from firms and competitors that want to buy key assets at reasonable prices.

 

For their part the let-go employees and pensioners have shown little sympathy for Nortel’s plight. Are they realizing that there is no financial relief for them and prefer to see satisfaction or justice in watching Nortel’s brass get popped off in the dying of their old firm?

 

Wrote the Globe: “The explanation [about the bonuses, pensions, and severance] was met with guffaws from the dozens of pensioners and laid-off Nortel employees who crowded into every seat in the committee room to hear their former boss.

 

“‘I feel like I was just dumped aside,” said former employee Ken Lyons.

 

“Retention bonuses aside, many of the remaining employees are wary of the company because of the way it has treated its former staff, said Paula Klein, speaking on behalf of recently severed Nortel workers.

 

“One of their biggest concerns is that if they do lose their jobs, they will receive nothing from Nortel for severance or pay in lieu of reasonable notice,” she said in a submission to the Commons committee. “This is causing low morale at Nortel.”

 

“She estimates the company owes the severed workers about $125-million in payments – money they can well afford.

 

Adding to the fury of ex-Nortel employees, the Toronto Star cited and quoted Dianne Urquhart, an independent financial analyst who has studied the Nortel situation, said she believes the company went into protection in order to avoid paying the severance bill, even though it had $2.5 billion in cash on hand.

 

“Management likely perceived that not paying the severance would lengthen the time period it could operate before exhausting its cash,” Urquhart reportedly said.

 

The Globe story added that severed workers, as well as committees representing tens of thousands of Nortel pensioners, want Parliament to amend creditor-protection and bankruptcy laws so that former employees take precedence over other creditors.

 

“They also want Ottawa to force Nortel to use the proceeds of the sales of foreign assets to pay their Canadian severance and pension benefits. Failing that, they want Ottawa to top up the pension fund and pay the severance.

 

“Still, pensions are mainly a provincial responsibility.

 

“The MPs’ questions frequently focused on how to make sure other companies don’t use creditor protection status to avoid paying severance or full pension to former employees – but there was no clear answer to those questions.

 

“The former employees sat quietly in the hearing room but broke committee decorum and applauded when NDP MP Mulcair defended their causes.

 

“You didn’t even try to get the money for the severance payments,” Mulcair charged.