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12 cents

That’s how much a $1000 investment in Nortel Networks Stock made in July 2000 would have been worth at the…

By Amelia Bellamy-Royds , in The Numbers Game , on January 14, 2009

That’s how much a $1000 investment in Nortel Networks Stock made in July 2000 would have been worth at the close of the TSX exchange on Wednesday. Assuming an investor had the stomach to hold onto the plummetting stock for that long.

The stock, which started falling with the collapse of the technology “bubble” in 2000 and 2001, has since been knocked farther and farther down by revelations of mismanagement and fraud. Wednesday’s additional drop came on news that the company had sought protection from creditors in Canada, the U.S. and the U.K.

One of the shares which closed at 12¢ on Wednesday and Thursday would have been worth $675 eight years earlier, at close of trading on January 14, 2000. The highest price paid was $1245.00 on July 26, 2000.

Of course, individual shares never traded for such huge figures. Repeated stock splits during the period when the stock was rising rapidly were reversed by a share consolidation in December 2006 which transformed ten old shares into one current share. Like an inflation-battered country redefining its currency to avoid printing extra zeros on every bill, the fancy accounting only emphasizes how much the value has dropped.

Business analysts are suggesting that this is the end for the once venerable telecom giant. The only way for Nortel to pay its debts, they say, is for the company to carve itself into pieces and sell them off to its competitors.

But the Canadian federal government, in contrast, seems optimistic that this is just a temporary “restructuring”. It has offered up a $30 million loan from the Crown corporation Export Development Canada (EDC). And that’s the number that got my attention in all this mess. What’s the point?

It’s not like Nortel is absolutely desperate for cash to cover this week’s payroll. The company claims to have cash reserves of over $2 billion. The bankruptcy protection actions on Wednesday were made to avoid having to pay a $107 million interest payment on an outstanding loan. A $30 million loan from EDC is nowhere near big enough to fix the problem. It is, however, plenty big enough to irritate the hard-working Canadian tax-payer worried about job losses in tough economic times.

Are federal cabinet ministers thinking about job losses, too? After all, they had to swallow some unpleasant numbers just last week when Statistics Canada released the latest national employment figures.

Nortel Networks is nowhere near the behemoth it was ten years ago, when it’s Ottawa-area research campus was the second largest employer in the region, after the federal government itself. (Many of my high school classmates had part time jobs doing office work or even coding for the company.) Nonetheless, the company still employs approximately six thousand Canadians, and losing those jobs would be a hard blow to an already stumbling economy. Maybe the loan is just a little “thinking of you” gift to Nortel execs in their time of troubles, to remind them who their true friends are.

That’s a possible explanation, but history would dispute it’s logic. The last few times Nortel has announced a corporate restructuring, they have cut Canadian jobs, sometimes by shipping positions to lower-cost labour markets such as Mexico and Turkey. That’s not exactly the type of exports that EDC is supposed to be encouraging.

Although government-owned, Export Development Canada is supposed to operate on commercial principles, paying for its operations through fees and interest. Although it does sometimes offer government-backed loans for high-risk ventures through a separate funding mechanism, there has been no suggestion of using that for Nortel.

Instead, the promised money is from EDC’s “existing bonding facility,” in the words of Industry Minister Tony Clement. EDC offers a number of different “bonding solutions”, and it’s not clear which is being offered to Nortel. All would involve some form of guarantee on a loan or contract between Nortel and a bank or supplier.

This makes a bit more sense, in that it makes the EDC offer more about protecting other companies rather than giving money directly to Nortel. However, with the company in bankruptcy protection, the chances that EDC will have to pay out the guarantee seem high.

And at a time when $30 million would buy up a majority of the company’s nearly half-a-billion stock shares in circulation, I’m still trying to figure out the math that would make this all add up.


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