For Sale: Nortel’s South Korean joint venture

The troubled Canadian telecommunications equipment maker, Nortel Network is looking forward to sell its controlling stake in a South Korean joint venture to raise desperately needed cash. Toronto-based Nortel filed for bankruptcy court protection in mid-January after the credit crunch precipitated a dramatic collapse in customer orders. Since then, its management team has been preparing a restructuring plan that would enable the company to emerge from bankruptcy protection either intact, or having sold some of its assets.
People that are familiar with the situation said that Nortel had hired Goldman Sachs to find a buyer for its 50 per cent stake plus one share in LG-Nortel, the telecommunications equipment maker in which LG Electronics is the other partner.
Dealmakers said that a sale could value the joint venture at close to $1bn. They also said that the sale would interest foreign private equity groups and overseas strategic players who are keen to enter one of the world's most advanced technology-savvy markets.
Goldman Sachs declined to give its comment, and Nortel, which has just asked the Canadian bankruptcy courts for extra time to complete its reorganization plan, said it could not comment "on market rumors or speculation".
However, Nortel added: "We continue to work closely with our joint venture partner LGE to ensure the future success of LG-Nortel. LG-Nortel has enjoyed significant growth since its formation and is a market leader in Korea and selects international markets. Most importantly, LG-Nortel is a separate and solvent entity with no debt and a strong cash balance.
LG-Nortel and rival equipment maker Samsung, the powerful local conglomerate, dominate the supply of equipment to Korea's leading telecommunications operators. An acquisition of Nortel's stake would allow the buyer to enter the lucrative fourth-generation wireless telecoms equipment market, which is dominated by the two competitors.
Among possible asset sales, Nokia Siemens has made an offer to buy Nortel's core carrier equipment business as part of the company's strategy to expand its footprint in North America.
LG-Nortel was established in 2005 and last year posted revenues of Won1, 118bn (more than $1bn at last year's average exchange rate) and an operating profit of Won229bn. It has about Won400bn in cash equivalent and its debt-to-equity ratio is below 100 per cent.
People familiar with the matter said that the sale price would depend on the response of LG Electronics and whether it planned to acquire 100 per cent of the company, remain as a minority partner or take the opportunity to exit.
"What LG Electronics does next will tell us whether it regards telecoms equipment as a growth industry," said one dealmaker.
The stake sale is expected to attract interest from strategic rivals including China's Huawei and private equity groups including Providence Equity, a telecoms-focused fund, and Carlyle Group, a US firm with long-standing business dealings with the LG group.