IN THE NEWS ~ Industry Minister asks officials to review Nortel patent auction / Le ministre Paradis demande un examen de la vente des brevets de Nortel
July 7th, 2011 - 10:00am
TORONTO STAR (ONT) BUSINESS, Page: B1
Patents sale faces a new hurdle
Federal review could require Nortel demonstrate its $4.5B asset sell-off is of 'net benefit' to Canada
Michael Lewis Toronto Star
The sale of Nortel Networks Corp. patents to a consortium led by Apple Inc. could face a federal review to gauge the landmark deal's "net benefit" to Canadians.
Industry Minister Christian Paradis, named to the post by Prime Minister Stephen Harper in May, said Wednesday he has asked staff to decide whether the $4.5 billion (U.S.) sale falls under provisions of the Investment Canada Act.
"As a standard practice," a spokeswoman said, "the minister expects officials to look into significant transactions to determine how the act applies."
The deal could be blocked if the benefit threshold is not met, although Ronald Gruia, a telecommunications analyst with Frost &Sullivan in Toronto, said such a result was unlikely. The minister "is going through the motions," he said.
Gruia said the deal is among the best possible outcomes for Canada given that Waterloo-based BlackBerry maker Research In Motion Ltd. is part of the winning consortium, and co-bidder Ericsson AB of Sweden is a major employer of engineers in Canada.
He also said Nortel's more than 20,000 pensioners in Canada stand to gain from proceeds of the auction, which came in at five times the initial bid filed in April by Google Inc.
Gruia noted as well that Industry Canada has allowed previous Nortel assets sales to foreigners without a formal review. The patents deal is expected to be approved by bankruptcy courts in Canada and the U.S. on July 11.
Canada's investment provisions stipulate that a non-Canadian entity's buyout of a Canadian business with a book value greater than $312 million (Canadian) must provide a net benefit.
And the minister's staff must determine whether the 6,000 patents acquired by a group that also includes U.S.-based Microsoft Corp. and Japan's Sony Corp. in a four-day auction last week constitutes a "business" under the investment rules.
Nortel, once the largest wireless gear maker in North America, filed for protection from creditors in the U.S. and Canada on Jan. 14, 2009. Since then, it has sold off its business units and assets in liquidation auctions that have generated more than $7.6 billion (U.S.).
The patents and pending patents, Nortel's last remaining major holdings, cover technology including mobile communications, social media and Internet search.
They were developed at least partly at laboratories in Ottawa with the help of federal research and development tax credits.
NDP industry critic Peter Julian called on the federal government to hold public consultations on the sale, saying Nortel has benefited from significant support by taxpayers.
He also criticized the Tories for rubber-stamping an exodus of Canadian companies and assets to foreigners in a "very secretive process."
Ericsson had previously acquired the bulk of Nortel's wireless businesses but Ottawa deemed the book or balance-sheet value of the sale below the minimum threshold, and a formal review was not ordered.
According to a blog posting published on Apple websites, meanwhile, the Cupertino, Calif.-based iPhone maker paid $2 billion for outright ownership of Nortel's patents on the long-term evolution 4G operating standard for mobile devices, as well as for another package intended to hobble the Android smartphone software owned by Google.
RIM and Ericsson posted a winning bid of $1.1 billion for full rights to license the LTE technologies, the post said. Nortel controlled seven of the 105 patent clusters key to LTE, and Gruia said the rights could provide protection against patent violation lawsuits.
The BlackBerry maker could also recoup most of its $770 million payment for the patent rights through carry-forward tax writeoffs on Nortel losses in Canada, according to the I, Cringely blog at www.cringely.com.
It said Microsoft and Sony put up another $1 billion while a side deal for about $400 million saw U.S. storage company EMC Corp. negotiate sole ownership of an unspecified subset of the Nortel patents.
The patent auction proceeds imply a greater payout to Nortel's unsecured creditors, which include suppliers, pensioners and bondholders.
Bondholders stand to see full recovery on their claims, the U.S. Financial Industry Regulatory Authority said Wednesday after a strong rally in the value of the bonds since auction results were announced Friday.
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Paradis veut un examen
La Presse Canadienne
Ottawa examinera la transaction
Craig Wong, La Presse Canadienne
La vente du portefeuille de brevets de Nortel Networks à un groupe de poids lourds du secteur de la technologie, incluant la société canadienne Research In Motion (RIM), pourrait faire l'objet d'un examen en vertu des dispositions de la Loi sur Investissement Canada.
Le ministre fédéral de l'Industrie, Christian Paradis, souhaite que ses hauts fonctionnaires se penchent sur la façon dont la loi pourrait s'appliquer sur la vente aux enchères des brevets de l'ex-géant canadien. S'ils estiment la vente sujette à une révision, le Ministère devra conclure qu'elle présente un "avantage net" pour le Canada avant d'approuver toute entente.
La semaine dernière, un regroupement d'entreprises incluant RIM, Apple, EMC, Ericsson, Microsoft et Sony a remporté la mise pour plus de 6000 brevets grâce à une offre de 4,5 milliards US. La part de RIM, fabricant des téléphones intelligents BlackBerry, s'élève à 770 millions US.
Ce consortium a eu le dessus sur Google et d'autres entreprises pour l'acquisition de brevets qui touchent à presque tous les aspects des télécommunications, notamment la recherche sur l'internet et les réseaux sociaux.
En vertu de la Loi sur Investissement Canada, les ententes impliquant l'acquisition par des investisseurs étrangers d'entreprises canadiennes avec des actifs valant plus de 312 millions de dollars sont sujettes à une révision.
Le porte-parole du Nouveau Parti démocratique (NPD) en matière d'industrie, Peter Julian, a exigé du gouvernement fédéral qu'il tienne des audiences publiques sur la vente.
"Par le passé, le gouvernement a eu tendance à donner son approbation trop rapidement. J'espère qu'il ne le fera pas cette fois", a-t-il affirmé.
"Nous parlons ici de l'exploitation de brevets ayant impliqué des fonds publics", a ajouté M. Julian.
Nortel, qui a déjà compté 95 000 employés et dont la valeur a autrefois été estimée à 300 milliards, a demandé à se placer sous la protection de la Loi sur les arrangements avec les créanciers des compagnies en 2009. Depuis, la société a vendu la majeure partie de ses actifs à plusieurs entreprises, pièce par pièce, ce qui lui a permis d'obtenir des milliards de dollars pour rembourser ses créanciers, détenteurs d'obligations et autres.
Nortel a déjà été l'une des plus importantes entreprises du secteur des télécommunications, il y a une décennie. La société a toutefois été victime de la conjoncture du marché, de l'état de l'économie et d'un scandale comptable ayant contribué à faire chuter la valeur de ses actions.
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Minister wants review of Nortel patent auction
Craig Wong, The Canadian Press
The sale of Nortel Networks' patent portfolio to a group of technology heavyweights, including Research In Motion Ltd., could face a review under the Investment Canada Act.
Industry Minister Christian Paradis is asking his officials to look into how the act may apply to the sale. If they find the auction is subject to review, the minister must conclude that the sale is of "net benefit" to Canada before approving the deal.
"The minister has asked his officials to look into how the Investment Canada Act may apply to this transaction," Industry Canada said in brief a statement Wednesday.
A consortium dubbed "Rockstar" comprised of RIM, Apple, EMC, Ericsson, Microsoft and Sony won the auction for more than 6,000 patents with an offer of $4.5 billion US last week.
Waterloo-based RIM's share amounted to $770 million US, or 17 per cent of the total purchase price. However, how the ownership structure of the patents within the consortium has not been disclosed.
The group beat out Google and others for the patents, which include technology that is expected to be the backbone of wireless networks for the next decade.
Under the act, deals involving foreign investors buying a Canadian business with assets worth more than $312 million Cdn are subject to review.
NDP Industry critic Peter Julian called on the government to hold public consultations on the sale. "The government has tended to rubber stamp in the past, I'm certainly hoping that they do not rubber stamp this time," he said. "We're talking about the developments of patents that involved public money."
Much of Nortel's research and development was done in Ottawa, at a facility formerly known as Bell Northern Research, although the company also had research facilities around the world.
Once Canada's technology superstar, Nortel has been selling assets to repay creditors since filing for court protection under the Companies' Creditors Arrangement Act in January 2009.
The patent portfolio was the last major technology asset Nortel had left to sell.
A joint hearing to approve the sale by the courts in Canada and the United States overseeing the sale of the Nortel assets is scheduled for July 11.
Ernst and Young, the monitor overseeing process, recommended Wednesday that the courts approve the sale.
"The monitor is satisfied that the purchase price for the assets constitutes fair consideration for such assets. As a result, the monitor is of the view that the sale agreement represents the best transaction for the sale of the residual IP," the firm wrote in its report.
Also Wednesday, Nortel said the Canadian and U.S. courts have appointed Ontario chief justice Warren Winkler as the mediator in connection with the division of the proceeds from the sale of the company's assets. The mediation was ordered in an effort to try and settle disagreements about how the cash raised from the company's various asset sales should be divided.
The company has held several auctions for its various divisions and assets that have required a review under the Investment Canada Act.
In 2009, then-industry minister Tony Clement signed off on Nortel's sale of its Metro Ethernet Networks division to U.S.-based Ciena Corp. for $769 million. The government also approved the sale of Nortel's enterprise solutions business to Avaya Inc. for $900 million.
However the Conservative government has been known to say no to sales under provisions of the Investment Canada Act.
Clement blocked BHP Billiton's hostile takeover bid for PotashCorp last year and, in 2008, then-industry minister Jim Prentice blocked the sale of MacDonald, Dettwiler 's space business to U.S. defence contractor Alliant Techsystems Inc.
© 2011 Torstar Corporation