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Private equity firms are eyeing Nortel and Motorola, with several having advanced plans to cherrypick certain assets of both ailing firms to create a new entity. The firms are refusing to comment on the story, which was reported by the London Financial Times, but the scant details emerging from the purported leaks tend to recall the old proverb - 'two stones tied together just sink faster'.

According to the FT's sources, Advent International is one of the most serious potential bidders, and would look to acquire the Motorola handset business plus certain Nortel units, presumably parts of its wireless operations, to create a combined new player. Advent is said to be looking for partners to join in a bid.

Such a plan would take Motorola's worst performing unit and combine it with a Nortel business whose chief attraction would lie in its LTE potential, since it exited W-CDMA and WiMAX, and its CDMA and GSM platforms are in declining markets. A bidder might also be lured by Nortel's carrier IP technologies. Acquiring LTE and IP from Nortel would come more cheaply than buying Motorola's infrastructure business, which is quite healthy and profitable, to go with the handsets, though if the attraction of Nortel was to create a 4G/all-IP business, it is questionable whether the buyers really need handsets at all. Generating customer confidence in the Nortel products would require a strong financial story from day one, and the phones business would only drag that down.

Nortel had, until recently, said it would exit from bankruptcy protection intact, if radically streamlined, but last week there were strong hints that it might, instead, break itself up and sell off as many parts as possible, with Nokia Siemens said to be interested in the wireless business. Motorola, despite its problems, has repeatedly said it does not aim to sell off the handsets unit, but to turn it around prior to spinning it off at a future date. But the subsidiary has been in freefall, and there will certainly be pressure from some shareholders to sell out and preserve the margins and fairly robust performance of the other two divisions. Some analysts estimate that Motorola minus the handsets would be worth twice its current market capitalization of $7.95bn, because of the "massive negative valuation" of the devices operation. But co-CEO Greg Brown said recently that turnaround in handsets would start in the current quarter.

Motorola and Nortel themselves have often been rumored, over the years, to be discussing merger, but nothing has ever come of those talks.

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