Nortel misleading creditors, RIM charges

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Research In Motion Ltd. is escalating its attacks on Nortel Networks Corp. and pushing ahead with an unusual $1.1-billion (U.S.) bid for much of what remains of the former technology giant.

In a sharply worded series of statements, RIM said it has been trying to buy Nortel assets for nearly a year, but has been repeatedly blocked by company officials. The BlackBerry maker also accused Nortel of misleading creditors about the discussions, and it demanded changes to an auction under way for a key Nortel division.

Once one of Canada's largest companies, Nortel filed for court protection from creditors in January and it has been selling off divisions ever since. In June, the company announced an auction for one of its most lucrative operations, the carrier-networks division which provides wireless systems to phone companies across North America. Bids were due Tuesday at 4 p.m., and Nortel has alleged RIM refused to abide by the auction process.

On Tuesday afternoon, RIM said the deadline was irrelevant.

"RIM does not consider the process closed," the Waterloo-based company said after the deadline passed. "Nortel could seek to extend the deadline and the Government of Canada can intervene in a way that forces Nortel to reopen the process. Canada's economic and national security considerations justify further review."

Federal officials are watching the auction and Industry Minister Tony Clement Tuesday urged the companies to get together.

"Obviously while we cannot determine who will be the successful bidder, if there is a Canadian bid in this process, I think that is advantageous for that bid to be at least considered," Mr. Clement told reporters. "And so it would concern us if there are some procedural difficulties that a Canadian bid would be facing."

RIM's interest in Nortel has surprised many industry analysts and left some of those involved in the auction wondering why RIM bypassed the court process and issued a public offer. "I have not seen anything to this degree [in a bankruptcy protection] but hopefully common sense will prevail," said a source familiar with the bidding.

The dispute centres largely around access to some Nortel patents. The carrier-networks division includes hundreds of patents related to Nortel's work on an emerging high-speed wireless technology called Long Term Evolution, or LTE. Telecommunication companies around the world are racing to develop LTE technology because it will allow cellphones to handle more services, such as interactive television, video blogging and advanced gaming. Analysts estimate Nortel's LTE-related patents could generate tens of millions of dollars in royalties annually. Nortel has indicated that it wants to keep some control over the patents.

On Tuesday, RIM confirmed its interest in the patents, saying that it "believes that Nortel's wireless business and certain [intellectual property]assets have significant value and that Nortel has strong engineering talent in key areas including the emerging technology of LTE that would be beneficial to RIM."

The bankruptcy court approved Nortel's auction plan on June 30 and the company received an opening bid worth $650-million (U.S.) from Nokia Siemens Networks B.V., a joint venture involving Finnish phone giant Nokia Corp. and Germany's Siemens AG.

Nortel alleged RIM did nothing until July 15, when it submitted a letter seeking to become a qualified bidder. Nortel said it tried to work with RIM "on acceptable confidentiality terms relating to Nortel's valuable intellectual property assets, but RIM refused to comply with the court approved procedures."

A source familiar with the discussions said RIM was initially only after the patents and then proposed a bid for far more assets. Nortel balked and said the proposal did not fit within the terms of the auction process.

RIM co-chief executive Jim Balsillie is now trying to use political pressure to get the bid on the table, the source added. "Balsillie is a very skilled negotiator, he's a brinksman, and he doesn't mind clawing and kicking to get his way," the source said.

Mr. Balsillie was unavailable for comment, but in a statement, the company said it tried to engage in "constructive discussions" to "deal with this matter amicably … but Nortel kept blocking RIM on all routes."

RIM said Nortel put unfair conditions on its proposals, including a requirement that it could not bid for more assets for a year. "There is nothing in the bidding procedures that contemplates Nortel requiring RIM to promise not to bid for other assets for a year as a condition of bidding for the wireless business," the company said.

Nortel spokesman Jay Barta said in an e-mail that "the bottom line is that RIM refused to sign a non-disclosure needed to open [or]start dialogue, so there is no 'bidding process to manage.'"

While the two sides bickered, another bidder emerged yesterday. New York-based MatlinPatterson Global Advisers LLC submitted a $725-million offer, saying its "alternative proposal is higher and better" that Nokia's. MattlinPatterson is a major Nortel creditor that says it is owed more than $400-million (U.S.) by the company.

With a report from Shawn McCarthy