Nortel (NYSE: NT) and Motorola (NYSE: MOT) are in negotiations about putting together their wireless telecom equipment businesses. According to The Wall Street Journal "If consummated, the talks will create a joint venture that likely will have sales of about $10 billion."
Nortel has total revenue of just over $11 billion, so half of its assets would go into the JV. But, Nortel has $3.8 billion in long-term debt and had operating losses in two of its last four quarters. The unit that houses Motorola’s network equipment operation had revenue of $2.7 billion last quarter, but its operating income fell to $192 million down from $223 million in the quarter a year ago.
Wall St. does not think much of Nortel. Its stock has fallen from a 52-week high of 31.79 to its current price of just above $11. Over the last year its shares have done worse than shareholder-bleeding Alcatel-Lucent (ALU). By comparison, Motorola’s stock performance has been excellent.
The telecom equipment business is not terribly attractive now. Not only has Alcatel-Lucent (NYSE: ALU) done poorly but the division of Ericsson (NASDAQ:ERIC) which operates in the industry has had a bad year as has the JV between Nokia (NYSE: NOK) and Siemens (NYSE: SI).
Desperation clouds the mind. Motorola wants to get shareholders, especially Carl Icahn off its back. Perhaps it will sell its largest operation, handsets, and get a good price. But, a merger of two weak operations yields no one any benefit.
Douglas A. McIntyre
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