Updated from 11:15 a.m. ESTBeleaguered telecom equipment manufacturer Nortel Networks ( NT) has filed for bankruptcy protection in a last-ditch attempt to put its troubled house in order. Nortel's bankruptcy petition comes just a day before the firm was due to repay a $107 million interest debt on bonds and follows months of speculation about the company's future. The Toronto, Ontario-based firm's stock has plummeted recently amid falling sales and was even threatened with delisting from the NYSE. The company's stock plunged even further in pre-market trading Wednesday, tumbling 77% to 7 cents. Nortel will now seek creditor protection under the Companies' Creditors Arrangement Act (CCAA) in Canada, and its American subsidiaries have filed for Chapter 11 with the U.S. Bankruptcy Court for the District of Delaware. Some of the firm's European subsidiaries are also expected to file for bankruptcy, according to Nortel. "Nortel must be put on a sound financial footing once and for all," explained the company's president and CEO Mike Zafirovski, in a statement early Wednesday. "I am confident that the actions we're announcing today will be the fastest, most effective means to translate our improved operational efficiency, double-digit productivity, focused R&D and technology leadership into long-term success." The application under the CCAA will be heard later today by the Ontario Superior Court of Justice, although Nortel says that its day-to-day operations should continue without interruption.
But these recent moves only proved to be futile attempts to save a broken company from financial collapse. Nortel was one of the top suppliers to the Internet building boom at the turn of the century but was later crushed after the bust when the industry was left with an oversupply of telcos and network capacity. Under CEO Frank Dunn, Nortel's attempts at a recovery were further undercut in 2003 by an executive bonus scheme built on bogus earnings figures. The scandal swept out nearly all of Nortel's executives and board members and led to the hiring of Mike Zafirovski, fomer No. 2 at Motorola ( MOT). Zafirovski led several staff cuts and product consolidation efforts, but never managed to set Nortel on solid footing. "The sector is tough, and it didn't help that new entrants became aggressive with price," says RBC analyst Mark Sue. "Nortel's filing is a sad end, and it highlights the challenges of the sector and how the company never recovered after its accounting scandal. In the end, Nortel's demise was its own undoing."
Nortel, which has been wrestling with plummeting sales of its wireless gear, announced plans to divest its metro Ethernet networks divison in September and is also rumored to be carving off more of its business. Ericsson, Huawei, Nokia Siemens ( NOK) and Cisco Systems ( CSCO) have all been cited as possible purchasers of Nortel's Ethernet networks division, which could be priced anywhere from $500 million to $1 billion, according to analysts and media reports. Last month, Toronto's Globe & Mail reported that Nortel has received three separate offers that are close to $1 billion, although the company declined to comment on the report.