Nortel Seen Striking it Rich on Fiber Deal
Analysts said Nortel Networks Corp. would strike it rich if it sells its fiber-optics parts business to Corning Inc.
Ottawa, (Reuters). The Wall Street Journal reported Monday that Nortel, the world s No. 2 telecoms network equipment supplier, was in talks to sell the business to Corning, a deal the newspaper said could be worth more than $100 billion. Analysts said the timing of such a sale would make sense for Nortel in light of JDS Uniphase Corp. s stock bid, valued at $41 billion when announced two weeks ago, to take over rival SDL Inc.
``It shouldn t stretch investor imaginations to see Corning and Nortel get together, said Kevin Slocum, an optical industry analyst at Wit SoundView. ``I think it s pretty clear that the two are talking -- they ve spoken in the past...it ends up being a good competitive response to the JDS/SDL move.
The Wall Street Journal cited unnamed sources as saying the deal would be a stock swap primarily and could result in Nortel owning more than 50 percent of Corning. Corning would own the optical parts unit and maintain its independence.
Nortel s optical-components business has annual revenues of about $1 billion and the deal s $100 billion price may be partly based on its rapid growth, the Journal said. ``We have no comment on rumor and speculation, said Jeff Ferry, a Nortel spokesman. ``We don t comment on rumors regarding takeovers. A spokesman for Corning declined comment, the newspaper said. Nortel shares hit a new high Monday after the report, hitting C$124.00 on the Toronto Stock Exchange before slipping to C$120.75, a gain of C$1.80. In New York, the issue added 1-7/16 to 82-1/4.
Explosive traffic growth on the Internet is fueling tremendous demand for fiber-optic network systems, which can handle greater volumes of voice, data and image information than traditional networks. Components, used in those networks, include such equipment as pumps, lasers and filters that help push large volumes of data and boost capacity.
Nortel and Corning were in ``serious discussions last summer, Slocum said, but talks were shelved due to Nortel s concerns over the tight components supply market. ``It would have been risky to potentially subject the business to a combination and I just think Nortel couldn t bring itself to that kind of a point, Slocum said. ``We re a year later -- the component industry in general is producing at a much higher sustained rate. I think the prospect is much less risky today. The value of such a transaction can t be clearly estimated, he added, because exactly what Nortel assets would be included in such a sale isn t known.
``They ve always seemed to indicate that their components business and the parts business, that go into their optical unit, is strategic and for that reason they would keep it, said Brian Van Steen, analyst at optical market research group Ryan Hankin Kent. ``But $100 billion is a lot of money -- I m sure it s a big enough cheque that anyone would re-evaluate their thoughts.
After such a divestiture, Nortel would focus on the more expensive optical systems it builds, said Michael Christinziano, analyst at Gerard, Klauer Mattison in New York. ``To have all of the components stuff captive as markets mature is not a wise move, he said. ``A lot of the value add that Nortel provides is in the system itself, he said.
The deal also makes sense for Corning, which must grow quickly if it wants to remain competitive with JDS Uniphase, the world s biggest supplier of parts for fiber-optic equipment in networks, analysts said. ``Corning was way down the aisle with SDL before JDSU jumped in with an offer, said Paul Sagawa, telecommunications analyst at Sanford Bernstein & Co. ``I suspect Corning, after Plan A (to) buy SDL fell through, that they cast about for a Plan B.
Brampton, Ont.-based Nortel reports second-quarter results Tuesday after the markets close. Analysts expect it will better consensus profit estimates of 15 cents a share because of strong fiber-optic system sales. Nortel was also boosted Monday by news that it will supply British Telecommunications Plc with equipment for a new European broadband network. The value of the supply arrangement was not disclosed. ($1-$1.46 Canadian)
By Susan Taylor, Reuters
