Nortel May Raise as Much as $1.1 Billion From Patent Sales

Nortel Networks Corp., the insolvent Canadian phone-equipment maker, may get as much as $1.1 billion for technology patents that analysts say would benefit potential bidders including Research In Motion Ltd.

The Toronto-based company has about 4,500 patents granted and more than 1,000 applications for designs pending, according to U.S. Patent and Trademark Office data, said Peter Conley of MDB Capital Group LLC, who estimated their value. They would be a “natural fit” for BlackBerry maker RIM, he said.

“Patent estates of this size don’t come along that often,” said Conley, who is managing director of Santa Monica- based MDB, an investment bank specialized in intellectual property. “This is the equivalent of acquiring the IP of a large technology company. If you could buy that for a billion dollars, it would be a bargain.”

Nortel’s patents would give buyers technology used in wireless networks that support data-hungry smartphones like Apple Inc.’s iPhone. A sale would add to the more than $2.8 billion Nortel has raised from selling assets in bankruptcy and be a boon to creditors, said Ehud Gelblum, a New York-based Morgan Stanley analyst.

“Creditors would be tickled pink to get $1.1 billion,” Gelblum said in a telephone interview. “I don’t think they would have expected Nortel to generate $4 billion” from asset sales.

Photographer: Norm Betts/Bloomberg

Nortel wants to cut off medical and disability benefits to its former U.S. employees. Close

Nortel wants to cut off medical and disability benefits to its former U.S. employees.

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Photographer: Norm Betts/Bloomberg

Nortel wants to cut off medical and disability benefits to its former U.S. employees.

Nortel said this month it has started soliciting bids for the patents. The company is assessing how to “maximize the value” of the patents and is talking to a “wide range” of companies to determine their interest, said Jamie Moody, a Nortel spokeswoman, declining to identify them. RIM has no comment, said Marisa Conway, a spokeswoman for the company.

Last Assets

Nortel filed for bankruptcy protection in January 2009 after posting a loss of $5.8 billion in 2008. The company has since auctioned off businesses, and the patents are among the last assets left, according to court papers. Nortel has yet to file a plan for paying creditors. Company attorneys have said in court that they don’t expect any of its primary businesses to exit bankruptcy.

Creditors said they are owed as much as $16.3 billion, according to court records, a figure the company will challenge as part of its bankruptcy case. Nortel said in court papers it owes about $5.9 billion. In bankruptcy, the final debt figure is typically lower than what is initially claimed after a judge eliminates duplicates and illegitimate debts.

Photographer: Matt Stroshane/Bloomberg

RIM co-Chief Executive Officer Mike Lazaridis has referred to Nortel's LTE technology as a "national treasure". Close

RIM co-Chief Executive Officer Mike Lazaridis has referred to Nortel's LTE technology... Read More

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Photographer: Matt Stroshane/Bloomberg

RIM co-Chief Executive Officer Mike Lazaridis has referred to Nortel's LTE technology as a "national treasure".

Bonds Rise

General unsecured claims, such as debts owed to suppliers, are trading at about 50 cents on the dollar, said Andrew R. Gottesman, a vice president with SecondMarket Inc., a private exchange of illiquid assets such as bankruptcy debt.

Nortel 10.75 percent callable bonds maturing in July 2016 rose 1.2 cents to 79.2 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. It’s the biggest percentage gain in more than two months.

“The chances are very small creditors will get it all back,” said Ed Ketz, a professor of accounting at Pennsylvania State University. “They may get 60 cents on the dollar but of course we don’t know what the number will be until the judge decides.”

Even with a discount to account for Nortel’s insolvency, the patents are worth $750 million to $1.1 billion, said Conley, the intellectual-property banker. His valuation is based on an estimate for types of patents, multiplied by the number in the portfolio and discounted for the age of the patents.

Scott McKeown, a patent lawyer with Oblon, Spivak, McCLelland, Maier and Neustadt in Alexandria, Virginia, said a sale price of at least $750 million for the patents is reasonable, especially as they include Nortel’s Long Term Evolution, or LTE, technology for the newest wireless networks, called fourth generation.

‘Pretty Conservative’

“For that number of patents and assuming that a hundred of them are 4G, that number may actually be pretty conservative,” McKeown said in an interview.

Nortel has yet to decide whether a sale, licensing, some combination of the two or another alternative is the best decision, said spokeswoman Moody. She declined to comment on how many LTE patents Nortel has or on the estimate for their value.

RIM, based in Waterloo, Ontario, attempted to block Ericsson AB’s $1.13 billion purchase last year of Nortel’s code- division multiple access, or CDMA, technology, on which most mobile phones in North America run, saying the deal would deprive Canada of vital technology.

‘National Treasure’

RIM co-Chief Executive Officer Mike Lazaridis said at the time that his company had bid on some of Nortel’s assets before the bankruptcy. He also called Nortel’s LTE technology a “national treasure.”

RIM advanced 9 cents, or 0.2 percent, to $59.32 at 4 p.m. New York time in Nasdaq Stock Market trading.

Many of the innovations RIM is working on to improve the way information is sent from a network to a device have derived from Nortel research, according to Conley. RIM has about 1,300 patents approved by the patent office and they cite Nortel patents 101 times, Conley said. The majority of those Nortel patents are tied to LTE technology, he said.

“It would be a very efficient way for them to beef up their intellectual portfolio,” he said. Conley, who maintains a database that values patent portfolios, said he has no affiliations or business ties to Nortel or RIM.

Ericsson, based in Stockholm, would be interested in pursuing more Nortel patents, Mark Henderson, head of the company’s Canadian unit, said last August. Patricia Maclean, a company spokeswoman in Canada, said Ericsson had nothing to add.

Cisco Systems Inc., the world’s biggest maker of networking equipment, may also be interested in Nortel’s patents, according to Conley. The San Jose, California-based company has cited Nortel 3,200 times in its patent applications, Conley said, citing U.S. patent office data.

David McCulloch, a Cisco spokesman, declined to comment.

To contact the reporter on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net

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