114-year-old Nortel’s CEO Zafirovski Resigns as Asset Sales Near End

114-year-old Nortel’s CEO Zafirovski Resigns as Asset Sales Near End

by Kelly Riddell and Hugo Miller

Nortel Networks Corp., the Canadian phone-equipment maker in bankruptcy protection, said Chief Executive Officer Mike Zafirovski stepped down today as efforts to sell off the company’s businesses wind down. The company’s business units will now report to Chief Restructuring Officer Pavi Binning, Nortel said today in a statement.

Zafirovski, 55, who joined Toronto-based Nortel in November 2005, worked to cut costs and shift its focus to new technologies. He had to cope with slumping telecommunications spending and the loss of customers to competitors such as Cisco Systems Inc. Nortel filed for Chapter 11 bankruptcy protection in January after losses of almost $7 billion over two years.

“He inherited a difficult situation,” said Ashok Kumar, an analyst at Collins Stewart LLC in San Francisco. “It’s probably the optimal outcome: finding the right home for the assets and employees, and moving on.”

The company also reported its second-quarter loss widened to $274 million, or 55 cents a share, from $113 million, or 23 cents, a year earlier. The loss included reorganization costs of $130 million. Sales fell 25 percent to $1.97 billion.

Nortel was little changed at 5 cents in over-the-counter trading today. It has lost almost all of its value in the past year.

Asset Sales

The company plans to give accounting firm Ernst & Young LLP, its Canadian monitor during bankruptcy proceedings, an enhanced oversight role. It will also name a principal officer for the U.S., who will work with a committee of Nortel’s creditors. Both are subject to court approval.

The 114-year-old company won approval last month to sell its primary wireless carrier business for $1.13 billion to Ericsson AB, the world’s largest maker of wireless networks.

Nortel’s biggest customers, including Verizon Wireless, forced the sale of the unit after voicing concerns about buying new technology because of Nortel’s financial troubles, Chief Strategy Officer George Riedel said in June.

Earlier this month, Nortel got court permission to sell its enterprise solutions unit at a Sept. 11 auction. Phone-equipment maker Avaya Inc. plans to make the opening bid of $475 million. Customers of the unit, which has about 7,800 employees, include retailers and health-care providers. Nortel has at least three bidders lined up, Zafirovski said today in a phone interview.

The company said today it plans to give accounting firm Ernst & Young LLP, its Canadian monitor during the bankruptcy proceedings, an enhanced oversight role. Nortel will name a principal officer in the U.S., who will work with its creditors there. Both appointments are subject to court approval.

Turnaround Guy

Zafirovski joined Nortel after accounting fraud led to the ouster of 10 executives including former CEO Frank Dunn. Zafirovski built his reputation as a turnaround guy at Motorola Inc., where as president and chief operating officer he helped revive its wireless unit with the top-selling Razr phone.

“Mike made a commitment to see the process through the stabilization of the company, sale of its largest assets and the right plans and people to continue operating our business,” Chairman Harry Pearce said in the statement. “He has done so.”

Nortel’s gear is largely based on code division multiple access, or CDMA, networks, which are found mostly in the U.S. and Canada. Demand dropped as customers moved to faster systems available more broadly around the world. Carriers are now testing 4G, or fourth-generation, standards such as LTE, or long-term evolution.

The company was denied aid from the Canadian government that may have helped avert bankruptcy and safeguard severance pay and pensions, Zafirovski told Canadian lawmakers in June.

Zafirovski said in the interview today Nortel expects to have bidding arrangements in place for all its businesses by the end of September.