Mergers & Acquisitions

Mergers & Acquisitions

July 08, 2011

Apple and RIM- Led Consortium Grab Nortel Patents for $4.5B

In a bid to snap up Nortel’s technologies covering almost all aspects of telecommunications, a consortium consisting of tech-giants such as RIM and Apple (News - Alert) parted with a whopping $4.5 billion in cash this week. The other members of the consortium were Microsoft Corp., Ericsson, Sony Corp and EMC (News - Alert) Corp.

The investment reportedly fetched the companies about 6,000 patents and patent applications belonging to bankrupt telecom-equipment maker Nortel Networks Corp. Most importantly, the transaction gave the winning consortium a competitive edge over the competitor, Google.

It was not known how much each of the other companies paid.

Google Inc., whose Android phones compete with Apple’s iPhone and RIM’s BlackBerry earlier announced that it would bid $900 million in cash for all of Nortel’s remaining patents and patent applications.

In a press release, Google General Counsel Kent Walker called the outcome “disappointing for anyone who believes that open innovation benefits users and promotes creativity and competition. We will keep working to reduce the current flood of patent litigation that hurts both innovators and consumers.”. Google offers its Android software for free, anticipating a wider usage of other Google services, such as search and maps.

Ericsson (News - Alert) said it had contributed $340 million to the bid. Ericsson had already purchased many of Nortel’s other assets, including its wireless network business in 2009 for $1.13 billion.

Nortel’s patents cover many technologies, including data networking, semiconductors and next-generation wireless systems known as fourth generation, or 4G. Nortel said the portfolio “touches nearly every aspect of telecommunications and additional markets... including Internet search and social networking.”

Nortel remained a tech highflier throughout the 1990s. At its heydays, Nortel had more than 95,000 employees and a market capital worth nearly $300 billion. At one point in 2000, Nortel accounted for a third of the market value of the Toronto Stock Exchange.

According to industry experts, the company grew too fast. It was also believed to overpay for some of its acquisitions. Following an investigation into its accounting practices, the company also had to face shareholder lawsuits. There was a sharp downturn in orders from phone companies on the one hand, and on the other hand there were looming debt payments. All these accounted for the company’s eventual financial failure. And the climax reached when Nortel filed for bankruptcy protection in the U.S. and Canada in January 2009. The filing came one day before it was due to make a debt payment of $107 million.

“The size and dollar value for this transaction is unprecedented, as was the significant interest in the portfolio among major companies around the world,” Nortel Chief Strategy Officer George Riedel (News - Alert) noted in a statement.

The deal is expected to be completed in the third quarter of this year and will need approval from U.S. and Canadian bankruptcy courts in a joint July 11 hearing.

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Madhubanti Rudra is a contributing editor for TMCnet. To read more of her articles, please visit her columnist page.

Edited by Jennifer Russell

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