Nortel European Units Seek Slice of Cash for Past Work

Nortel Networks Corp.’s defunct units in the U.K. and Europe deserve part of the bankrupt telecom company’s $7.3 billion cash hoard because of their technology researchers’ past work, an investment banker said.

Paul Huffard, a senior managing director at Blackstone Group LP called to testify by the European units, argued yesterday in federal court in Wilmington, Delaware, that the best way to split the cash is based on the research and development by Nortel’s regional units.

Using that method, disputed by Nortel’s defunct U.S. and Canadian components, the U.K. and European units deserve about 18 percent of the cash, Huffard said.

The three contingents are in the third week of a six-week trial over how to divide cash raised in auctions after what was once North America’s largest telephone-equipment maker went bankrupt in 2009. The money includes proceeds of a patent sale that raised $4.5 billion.

The units are arguing for the money on behalf of creditors, including bondholders in the U.S. and pensioners in the U.K. and Canada. Each group is trying to convince a U.S. bankruptcy judge and a Canadian judge that its method for dividing the money is best.

20,000 Workers

Canadian creditors, including about 20,000 Nortel workers and pensioners, say they deserve almost all the money from the patent sale because Nortel was based in Ontario and its main holding company owned the intellectual property. The Canada group said it deserves a total of $5.8 billion of the $7.3 billion, according to court papers.

Huffard called the Canadian creditors’ approach “irrational,” saying they claimed that the rights held by the U.S. and European units to use the patents had no value, even though the U.S. unit oversaw the sale of the patent portfolio.

Had the rights involved not held any value, “no purchaser would have bought the assets,” Huffard said.

The U.S. unit is claiming $5.3 billion, citing the share of revenue from each of the regions. Sheila Block, a lawyer for the U.S. creditors, said the U.S. unit made on average 70 percent of Nortel’s total revenue from 2001 to 2009.

Should the U.S. unit win, Canadian creditors would collect 10 percent to 11 percent of what they are owed, they said in court papers.

The case is Nortel Networks Inc., 09-bk-10138, U.S. Bankruptcy Court, District of Delaware (Wilmington).