Nortel sells technology for fraction of original value

Analyst says billions in value destroyed, but Nortel says story isn't so simple

Nortel Networks is selling application delivery technology to Radware for US$17.65 million (NZ$34.4. million), a fraction of the US$6 billion-plus price it paid for its developer, Alteon WebSystems, in 2000.

Struggling Nortel says it has agreed to sell two application accelerators, five application switches and one virtual services switch from Alteon's intellectual property portfolio to Radware for $17.65 million.

Some analysts were amazed by the disparity between the value of the 2000 Nortel-Alteon stock deal and the price Radware paid for the former Alteon technology.

A Nortel spokesman, however, argues that the Alteon technology sold to Radware makes up a "small part" of the technology and intellectual property gained in the original purchase. He noted that Alteon provided Nortel with workers, technology and intellectual property. "Just a few select technologies" were sold to Radware, he stated.

The spokesman also noted that stock prices have changed drastically over the past nine years. "I don't want to say it was funny money back then, but it was a stock swap and not a cash deal," said the spokesman, Pat Cooper.

Yankee Group analyst Zeus Kerravala said some reports at the time of the Alteon purchase actually put value of the deal at more than US$7 billion. "Nortel turned US$7 billion into Us$17 million," he says. "It's the epitome of why Nortel is failing."

Kerravala says the Alteon deal provided Nortel with market leading technology, but that the telecom supplies firm "turned gold into dust" by poorly administering the complex integration of the two companies.

Even with several management changes at Nortel since the Alteon purchase, the company should have been able better integrate Alteon's people and technology, Kerravala says. The inability to do that, he added, was clearly part of the reason that Nortel has sought and received Chapter 11 bandkrupty protection.

The Nortel spokesman, however, contends that Alteon technology not included in the Radware deal has become "an anchor for technology development at Nortel. There have been a lot of uses [of Altair technology] inside Nortel."

He says Nortel shareholders should "stay tuned" for the results of that development.

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