ShaneMcLean.com

Information on legal and business topics from Canadian business lawyer Shane McLean

Nortel Spin Outs 101

Posted by Shane McLean on May 1, 2009

A couple of us here at LaBarge Weinstein have been getting  questions  lately about how you would go about acquiring a business unit out of  Nortel.  Not surprisingly, these questions have  generally been coming from folks currently inside  Nortel who see value in the asset or business line they are working on but aren’t sure what the future holds for that business within (or outside of) Nortel.

Most of the information I have seen about what is happening with Nortel or about the future of the company appears tp be based on rumour and is shaky at best so it is hard to give a definitive answer as to what process to follow or whether offers would be well received.   However, I can offer some insights about the kinds of things to think about if you are so inclined:

1.   Internal Discussions:  First, assuming you currently work at Nortel, you need to quietly ask around to  figure out whether there is any interest in this kind of proposition within the company.  I am guessing that there must be.  As part of its restructuring, Nortel, its creditors and its court appointed monitor must be  working to figure out ways to squeeze every last dime out of the company and so they would presumably listen to any credible  expression of interest.   The key is finding the right person to talk to and expressing your interest in a credible way.  I am assuming that the closer you can get on the org chart to the finance department the better your chances are of finding someone who will know what to do with your expression of interest.  

2.  Figure Out Who You Will Be  Buying From:   This question isn’t as simple as it sounds.  It may be that you buy from Nortel or, if your business unit ends up being carved off and bought by another entity , you may end up negotiating  with the acqurier.  Dealing with an acquirer may not be a bad thing.  The acquirer may  not be particularly interested in your asset or business line but had to take  it as part and parcel of buying a larger business unit it does want. That’s probably your best case scenario because you might be able to angle for  a deal without any cash up front. A third alternative is that you may eventually be dealing with a receiver, but that will limit your options in terms of structure.

3.  How Will You Pay For It:   This is obviously a huge question and having an answer is key to giving credibility to your approach.  If you are buying direct from Nortel, cash will be king.  In a restructuring scenario the stakeholders are highly unlikely to part with assets in return for debt, shares or other future consideration.  You will probably have the most flexibility in terms of the various alternative payment structures if you end up dealing with an entity that has acquired your asset or business line out of Nortel.  If that acquirer isn’t interested in your asset or business line they may be willing to part with it on a “no cash down” deal where you take the assets, employees and cost off their hands in return for shares in your new company, debt or some other future consideration.    If you are successful they get paid.  If not, they have unloaded the cost of operating and eventually winding down that unwanted business line onto your shoulders.  Seems like a win win for them.   

4.  How Will You Fund The Operations:  If you end up buying with no cash up front, you will have to show the seller that you have a viable plan to make the business work.  After all, the seller is counting on you to be successful in order to get paid.  You will need to have a viable business plan and have your funding sourced.   

It’s not an easy process and finding the required funding is always the trick with any acquisition, but (publicly or not) Nortel assets are for sale for the right price and I’ll bet that anyone can place a bid if you come with a viable plan that is well thought out and  can be delivered with a high level of credibility.

If anyone is gearing up to move ahead with something like this, let me know if I can help.  I bet it would be a lot of fun and it would be exciting to see a good business (or a bunch of good businesses) rise out of the ashes.

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