BCE to Spin Off Its 37% Stake in Nortel
BCE Inc., the giant Canadian telecommunications holding company, said Wednesday that it plans to spin off its 37% stake in Nortel Networks, worth about $50 billion, by distributing some 540 million shares in the Internet equipment maker to BCE stockholders.
The move would sever a centurylong link between BCE, formerly known as Bell Canada, and its former equipment arm--a business that has emerged as a major force in the technology industry, thanks to the frenzied growth of the Web and electronic commerce.
Nortel, whose revenue grew 26% to $21 billion last year, is one of the top producers of fiber-optic gear that can speed up the “backbone” networks that make up the Internet.
BCE Chief Executive Jean Monty is under pressure from investors to unlock the value of the holding company’s other assets. BCE’s market value lagged the value of its assets by about 25% as of Tuesday. As recently as October, the difference was more than a third.
The divestiture closely mirrors the decision by AT&T; Corp. to spin off its communications equipment arm in 1995. That deal created Lucent Technologies, which is Nortel’s main rival in fiber optics and other key communications technologies.
Before the announcement, Nortel’s stock slid 8% amid a sharp downturn in technology stocks, falling $8.94 to $99.94 on the New York Stock Exchange. Nortel’s highflying shares rose by almost the same amount Tuesday, when the company reported strong results for its fourth quarter. Trading in BCE shares was halted just before the late-afternoon announcement; the stock last traded at $99.50, up $3.50.
The development could provide a boost for Nortel’s stock, not that it needs much help. The company’s market value has nearly quadrupled over the last year, to $136 billion Wednesday. Nortel announced another stock split Tuesday.
The spinoff is structured so that BCE shareholders won’t be liable for capital-gains taxes. BCE shareholders will get 0.78 share of a new holding company that will own all of Nortel, and current Nortel shareholders will receive one share of the new company for each of their shares.
Nortel, based in Brampton, Canada, applauded the move by BCE, saying it would remove certain obstacles that may have discouraged some institutional investors from investing in Nortel.
“This releases Nortel as a truly independent global Internet powerhouse,” said Clarence Chandran, president of Nortel’s Carrier Packet Solutions unit.
By releasing such an enormous amount of stock into the market, big purchases or sales of Nortel’s shares by a mutual fund or other major investors would be less likely to affect Nortel’s share price. Overall, Nortel has 1.36 billion shares outstanding.
