Why Buy Nortel?

At first blush it might seem insane for anyone to offer to buy a bundled Nortel. After all, nothing has changed - the parts are still worth more than their sum. Yet that is what one of the creditor groups - MatlinPatterson Global Advisers - is proposing to do.

This is not insanity. Rather it is a recognition that now is a poor time to be selling assets, when the market is at its worst. It is only natural for creditors, those first in line to claim the proceeds of asset sales, to not lock in distressed valuations.

Their motivation is purely financial; it is not a rescue bid to save Nortel. It is instead a bid to delay the sale of Nortel's parts until market valuations rise when the economy recovers. The ploy is risky: the creditors are betting that the expense of keeping Nortel in business for the interim will be less than the increase in valuation when sold at some uncertain future date. The businesses themselves may also deteriorate further as customers abandon a supplier with a dubious future. It may be better for them to take the loss now and deploy the cash proceeds in, hopefully, better investment vehicles. However, it is their money and their risk, and therefore their call.

The outcome may be delayed but it is the same: Nortel is done.