Confusion over LG-Nortel bidders as consolidation rumors persist

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Confusion over LG-Nortel bidders as consolidation rumors persist

By CAROLINE GABRIEL

Published: 3 September, 2009

READ MORE: M&A | LG Electronics | Nortel Networks

One of the jewels in the range of Nortel assets coming up for sale is its controlling stake (50% plus one share) in the LG-Nortel joint venture, but there is some confusion over which firms will bid later this month. Reports state that there are four names on the shortlist, including Sony Ericsson, Alcatel-Lucent and two private equity organizations, but the first of these has denied any interest.

LG-Nortel was set up to combine the Korean firm's R&D and Nortel's customer access and marketing, to create and deliver a wide range of products (and amass IPR) in wireless, enterprise, optical and wireline markets, ranging from infrastructure to terminal. This broad remit means interest could come from many quarters, though it seems unlikely now that LG will buy out the rest of the venture - and it will favor a partner that brings the global reach that it hoped for from Nortel.

Sony Ericsson and Alcatel-Lucent have been shortlisted from eight candidates, according to Korean news reports, along with OneEquity, a private equity fund affiliated with JP Morgan and a South Korean investment firm, SkyLake Incuvest.

LG-Nortel did not file for bankruptcy protection and, as Nortel stressed in May when it announced plans to sell its stake, is a "profitable, standalone business with a strong balance sheet". LG has confirmed that it will retain its position in the JV, which has been valued by some sources at close to $1bn.

However, Sony Ericsson told news agency Reuters it does not, after all, have any interest in the LG-Nortel stake. "It's definitely not us. There must be some kind of confusion," said Aldo Liguori, the handset maker's corporate VP of global communications."I'm sure if it's something of that importance, I would know about it."

This led to speculation that it was actually Ericsson that was in the running - the Swedish vendor has been previously linked with the LG-Nortel auction, and could benefit from its patents and platforms in the converged IP world and in LTE (Nortel and LG recently demonstrated the first hand-off between CDMA and LTE, and such technology would boost Ericsson in supporting its new contract with Verizon Wireless). Ericsson said recently that, if there were further Nortel assets of interest, it would not rule out another purchase, to add to its acquisition of the Canadian firm's LTE/CDMA infrastructure business.

Also denying interest in an M&A move was China's ZTE, which (along with compatriot Huawei) has been rumored to be interested in buying part or all of Alcatel-Lucent. But ZTE chairman Hou Weigui said that he had no plans to explore a deal with the French giant, though he added that ZTE does not rule out other overseas acquisitions.

For its part, ALU said it planned to raise up to €1bn ($1.4bn) by issuing convertible bonds to help refinance its debt, pushing its shares lower. The company initially said it would launch a €750m bond, but raised the amount to €870m following higher than anticipated demand. There is an additional option to increase the bond issue to €1bn by September 8. ALU carries about €4bn in long term debt and has daunting pension obligations from the former Lucent. "The principal purpose of the offering is to contribute to the refinancing of the group's debt and the extension of its maturity, and, secondarily, to further enhance the group's financial position," the venture said in a statement.

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