Would-be Nortel buyers seek $1B loan from government

A group for former Nortel executives say they want to buy and keep the embattled technology company in Canada, but need a federal loan of at least $1 billion in order to do so.

David Patterson, a member of the group and a former Nortel director, said they want the company, which is currently in bankruptcy protection, to remain Canada's top spender on research and development.

Under his group's plan, the New Nortel would be headquartered in Ottawa and include about two-thirds of the company's existing business, with the remainder cut or sold to another buyer.

The new company would concentrate on building an ultra high-speed broadband network across Canada, said David Mann, a former Nortel vice-president who is also part of the group.

Group has private capital

So far, the group has private investors on board, but needs the federal money to go ahead.

Industry Minister Tony Clement has been in touch with one member of the group, former Nortel president Bob Ferchat. There has also been a meeting with Transport Minister John Baird, the Conservative MP who represents the riding that includes Nortel's Ottawa campus. However, Mann and Patterson said so far politicians have been lukewarm to their proposal.

Steve Foerster, a finance professor at the University of Western Ontario's business school, said he thinks the group needs to show the public more clearly how the new Nortel would make money.

"What is it that will allow this new Nortel to be successful and provide not just sufficient return to investors but — if there were any loans involved — a high degree of confidence that the taxpayers wouldn't be on the hook?"

If Nortel is broken up or moves overseas, Patterson said, Canada would lose future innovations. He likened Nortel's situation to that of the ill-fated Avro Arrow fighter plane. The development of the advanced interceptor was halted suddenly by the federal government in 1959 after it was deemed too expensive. The incident has been mourned as the loss of some of Canada's best technology.

Nortel research spending down $2.5B

Patterson said the Avro Arrow program had been planning to spend about $200 million to $300 million in 1958 dollars. He argued that Nortel's reduction in research and development spending is almost equivalent — about $2.5 billion in today's dollars.

Carleton University business historian Duncan McDowall said he doesn't agree with the comparison.

The Avro Arrow "installed itself at the heart of our national nostalgia" he said, adding that he doubts people will feel the same way about their Nortel phones.

He added that Nortel has been plagued with ethics and corporate governance issues, dubious accounting and, recently, terrible corporate morale that would make the company difficult to resuscitate.

"The Arrow was cancelled for good reasons and we stepped aside, took the losses, but eventually we took new direction in that field that has benefitted Canada tremendously," McDowall said. "We tend to use it as a flagpole to run up certain other national agendas. I don't think that's going to happen with Nortel."