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 INDUSTRIES VERTICALS HORIZONTAL PUBLICATIONS FREE RESOURCES INTERNATIONAL EVENTS ABOUT TMC COMMUNITIES |
January 15, 2009
Canadian Politics Would Kill Any Potential Sale of Nortel to U.S. Firms
By Brendan B. Read Senior Contributing Editor In the wake of Nortel seeking creditor protection there is well-founded speculation that Avaya or a Cisco (News - Alert), another U.S. firm, will buy the failing Canada-based telecom giant. There are too many benefits: quashing a strong competitor in a tough marketplace, economies of scale, top-drawer customers, and excellent engineering, R&D, and resulting products for likely buyers to ignore.
Yet such a purchase in whole is not likely to happen. And the reason lies in the cold, harsh political reality that resembles the sub-zero weather outside of the U.S. border.
That’s because Canada’s Prime Minister, Stephen Harper, can not afford to let his minority Conservative government be ousted from power by the Opposition Liberals who now have a new, smart (and U.S.-educated) leader, Michael Ignatieff, on the albeit simplistic flag-waving nationalistic issue of keeping Nortel (News - Alert) Canadian.
There is a new Parliamentary session that begins Jan.26 with both a Speech from The Throne, given by the Governor-General who is the official head of state, but written by the Government that outlines its agenda followed by the budget. There is already enough ammunition in the mix for a threatened federal election: an unlikely coalition of the Liberals and the left-wing New Democratic Party (NDP), backed by the left-leaning separatist Bloc Quebecois nearly toppled the Conservatives last month.
A sale of Nortel to the Americans could well be the spark. The Toronto Star reports that the Government is already being hit with flak to buy military trucks from Navistar that will be built at the firm’s Texas factory while production at its Ontario plant.
Letting Nortel slide could detonate a return to the polls and possible defeat is even more likely now that the Conservative government has taxpayers’ skin in the game. The Canadian Press reported Wednesday that Industry Minister Tony Clement said Ottawa will provide financing to help Nortel restructure and emerge as a viable firm.
That move may, if anything, create sufficient pressure to keep Nortel intact, allowing it enough time to restructure as the economy sorts itself out. As TMC (News - Alert) Group Publisher Rich Tehrani reported in his blog, Nortel’s foundations are solid i.e. innovative products and services backed by topnotch support used by customers who appreciate them and are savvy enough to read through the financial machinations.
“The government of Canada appreciates the importance of the telecommunications industry to our economy and will continue to work with Nortel during its restructuring through Export Development Canada,” Clement said in a statement. “EDC has agreed to provide up to $30 million in short-term financing through its existing bonding facility and is open to discussing with Nortel post-filing financing in conjunction with other financial institutions.”
A firm that is restructuring leaves itself open for a quick sale: assets worth dollars available for pennies. With the economy shrinking demand there is plenty of excess capacity, including people all around. Making more with less is an attractive proposition.
There would be jobs lost in especially say an Avaya or Cisco + Nortel deal but the same goes for any non-Canadian firm. The hard fact of ‘globalization’ is that few companies are really just that; they are hometown-H.Q.-centric. Would Avaya or Cisco, or for that matter Microsoft (News - Alert) give up U.S. jobs for those in Canada? Do salmon spawn downstream?
Here’s the political primer. The bulk of Nortel’s employees are in battleground seats in Ontario, namely suburban Toronto and Ottawa, which are the nation’s business and political capitals respectively. Kowtowing to the Americans sends the message to the residents in economically reeling auto-sector communities in other parts of Ontario, and to those living in Quebec and Atlantic Canada with big U.S. employers that they are dispensable too.
Add those seats up and the math means a minority Liberal government propped up by the New Democrats. This arrangement would not last for long, 18 months maximum. Mr. Ignatieff is smart and savvy enough to corner and dispense with the NDP, which isn’t going anywhere support-wise. The New Democrats’ agrarian/populist-trade union political base is a shadow of what it once was which was never strong federally to begin with; its success has been more at the provincial level where it forms the government in Manitoba and is a strong opposition in British Columbia.
P.M. Harper, who is a superb political games-meister, knows this. He quashed the sale of MacDonald, Dettwiler and Associates Ltd (MDA), makers of the Canadarm, to Alliant Techsystems, which is based in Edina, Minn. in May, 2008. You never choose the grounds where your opponents have the advantage, and despite the overtures Mr. Harper has made with President Obama, the Liberals, the New Democrats, and the Bloc have tied him to the much-hated old right-wing departing GOP Bush Administration.
The issue in Canada is not so much foreign ownership but American ownership, and control. American managers and executives dominate Canadian operations in the way of those of other countries, like France, Germany, Korea, Japan, and the UK do not. The U.S. style roughs up Canadians’ fur; they often see it as boastful and swaggering. Canadians admire, respect, but are not fond of Americans and are very sensitive to U.S. economic, cultural, military, and political dominance. Pierre Trudeau said of the relationship: ‘Living next to the United States is a little like sleeping with an elephant. You always wonder if they will roll over on you.’
There is a nationalistic streak even amongst Conservative supporters that run not too far from the surface. For example in Belleville, Ontario, a churchgoing, family-oriented manufacturing, military, agricultural, and contact center community 120 miles east of Toronto there are residents who won’t shop at the local WalMart because it is American. There is also a Nortel plant in the small city, whose workforce is but a shadow of what it once was, along with several auto industry suppliers, and a mix of Canadian-, American-, and French-owned contact centers. While the local Member of Parliament, who is a Conservative, won with a handsome majority in the last election, the area had until fairly recently been represented by a Liberal, and could well do so again…if Nortel became an issue that throws him and his party on the defensive.
The other side of the issue is who is going to step in if Nortel’s restructuring does not work out. In that event Nortel may not survive intact, and it is the technology firms outside of Canada that have the interest and the money. Yet as long as one of the units remains Canadian, then political face (and hides) can be saved. One possible buyer who can do this is Mitel, which is another Canadian-H.Q.ed communication supplier with operations also in suburban Ottawa. Both firms have complementary business/contact center solutions mixes and there are cost savings and economies of scale that can make such a deal profitable and doable. The rest of Nortel’s sectors can disappear offstage as long as the spotlight is on a deal like Mitel (News - Alert)/Nortel.
Canada’s business and political worlds are small, clubby, and interlocking. For those reasons the next moves in Nortel’s saga might well play out not so much on Toronto’s financial Bay Street and New York City’s Wall Street, but in the ring of neo-Gothic buildings on and surrounding Parliament Hill on Ottawa’s Wellington Street. And it is there that the decisions will be made that may well decide the fate of Nortel.
Brendan B. Read is TMCnet�s Senior Contributing Editor. To read more of Brendan�s articles, please visit his columnist page. Edited by Stefania Viscusi |
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