Nortel’s Mike Zafirovski: CDN’s Top Newsmaker of 2009

Published: December 18th, 2009

Once a Canadian technology giant and pioneer, a bluechip company that was part of nearly every Canadian’s retirement portfolio, in the end all the King’s horses and all the King’s men couldn’t put Nortel Networks back together again.

Not even Mike Zafirovski.

There was much optimism when the former Motorola president and CEO was brought in to lead – no, to save – Brampton, Ont.-based Nortel in 2005. Nortel rose high and fell hard with the dot-com bubble and burst, further battered by accounting scandals and earnings restatements that it seemed unable to shake.

Zafirovski, who had gained a reputation as a turn-around specialist, was brought in to bring the company back to its former glory after the memorable tenure of John Roth. Bill Owens had come in briefly to stop the leaking.

In the end, however, despite a talented and knowledgeable workforce, a world-class research team and a great portfolio of technology, the debt hole that previous bad decisions had dug for Nortel, coupled with the current economic downturn, left Zafirovski with few cards to play. And in 2009, play them he did.

While his decisions will likely be second-guessed for years, there’s no second-guessing that Zafirovski was CDN‘s Top Newsmaker for 2009.

It’s fitting that CDN ends 2009 with Nortel on the cover, because the January 23rd CDN cover told the story of Nortel’s filing for bankruptcy protection in Canada, the U.S. and Europe on January 14th, setting the stage for the slow and painful dismantling of the technology giant that would continue throughout 2009.

It wasn’t clear that was how it would play out at the time. In a letter posted on the company’s Web site following the announcement, Zafirovski said the creditor protection filing was necessary “in order to undertake a comprehensive business and financial restructuring. This process will enable Nortel to become the highly focused and financially sound communications leader it should be.”

Other companies in dire straits have used creditor protection as a vehicle to restructure and emerge stronger; Zafirovski’s letter held out hope of a similar turnaround for Nortel. The odds were against it, however. Nortel had lost more than US$7 billion since Zafirovski took over in 2005, and in 2008 had lost 97 per cent of its market share. It was burning through cash at an alarming rate.

After six months of creditor protection, however, the other shoe would drop. In July, the dismantling of Nortel Networks began with a US$650 million bid by Nokia Siemens Networks to buy most of Nortel’s LTE and CDMA wireless assets.

This bid would trigger multiple court-supervised auction processes that would break-up Nortel and sell it off to its rivals, piece-by-piece. And while the break-up and auction process would trigger government hearings, public relations battles and much drama, in the end, for 114-year-old Nortel, the die was cast.

The bidding for the wireless business would be won by Sweden’s LM Ericsson for US$1.13 billion, but not before calls for federal government intervention to block the sale to a foreign companyled by Waterloo, Ont.-based Research in Motion. RIM raised national security issues and claimed it had been unfairly blocked from bidding. In the end, the sale would proceed.

The other major prize, Nortel’s enterprise business unit, was won by rival Avaya in September with a bid of US$900 million, plus another US$15 million reserved for an employee retention program. The deal was subject to approval by the Canadian government under the Investment Canada Act, and Industry Canada minister Tony Clement said Avaya must demonstrate the deal is likely to be of net benefit to Canada. Avaya recently received this final approval, and will release a roadmap in January.

The last remaining pieces of Nortel are also on their way to new owners. Ciena Corp. agreed to buy Nortel’s metropolitan Ethernet and optical networking divisions for US$769 million, while LM Ericsson has agreed to buy another piece of Nortel’s carrier wireless business for US$70 million and Kapsch AG another piece for US$30 million. Some approvals are still pending.

And with that, Nortel’s cupboard was bare, and a proud Canadian innovator that could trace its roots back as far as 1895 was no more.

While the process that Mike Zafirovski put in place would carry on throughout the year, he wouldn’t be around for much of it – Zafirovski announced his resignation in August, following the sale of the wireless business to Ericsson.

His shadow will loom large for some time, however, as the dismantling of the company he failed to save winds down, and the impacts are considered evaluated. Could the company have been turned around? Could a leaner, meaner Nortel have emerged from creditor protection to preserve the legacy of a Canadian giant?

For our top newsmaker of 2009, history’s judgment awaits.

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