The Story of Norkia

Norkia is the creation of Scotia Capital analyst Gus Papageorgiou, who suggests in a research report there is "great merit" to a deal that would see Nokia fold its networks business into Nortel. The new entity, Norkia, would be 52%-owned by Nokia and would create the world's second largest GSM player behind Ericsson. Papageorgiou believes Norkia could generate $1.9-billion in synergies: $250-million from cost of goods sold, $750-million in R&D, $500-million in SG&A, and $340-million in tax savings. As important, he believes Nokia shares could jump 35% to $28.59 because it would become a pure wireless device maker by spinning off a business with lower margins. Meanwhile, Norkia could jump 93% to $4.58 by becoming a larger, more profitable business than Nortel. Of course, there could be regulatory, cultural and management issues. But Papageorgiou believes Nokia and Nortel have few options other than to pursue a deal. For Nokia, a deal with Ericsson is out because Ericsson doesn't need Nokia's networking business; a deal with Alcatel is out because it's got together with Lucent, and a deal with Motorola is out because it's an arch-enemy in the handset business. This leaves Nortel and Siemens' communications business. Papageorgiou believes Nortel is a better fit for Nokia because it is "the best opportunity to recognize cost synergies and [it] is the easiest to execute". As for Nortel, Papageorgiou said it has to pursue a deal unless it can figure out a way to "prop up its market cap" – something Nortel CEO Mike Zafirovski has failed to achieve since he came on board in November despite the management team he has put together, the confidence he instills in investors, and the strategic plan he recently unveiled. It will, no doubt, be interesting to see what Mike Z. thinks about Norkia when Nortel holds its AGM next month. By the way, Norkia.com is already owned by a pop-up software maker so Nokia and Nortel may have to come up with another name.

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3 Responses to “The Story of Norkia”

  1. All Nortel, All the Time » Blog Archive » Why is Mike Z. So Optimistic? Says:

    […] Nortel CEO Mike Zafirovski told analysts yesterday the company will post "some of the best results in Nortel’s history" by 2008. So what does he see that investors don’t given Nortel shares touched their lowest level yesterday since late-2002? How can he be so bullish at a time of fierce competition and lower margins within the telecom equipment market, as well as Nortel’s disappointing first-quarter results? Some of Mike Z.’s optimism about profits and operating margins may have to do with the dividends of fixing Nortel, which is undergoing a massive strategic, cultural and operational overhaul under his leadership. You get the impression the ex-Motorola COO believes there is a lot of low-hanging fruit to be picked before any of the really tough questions (such as whether to sell low-performing units or merge Nortel with Nokia or Siemens) have to be answered. For investors, do you buy into Mike Z.’s bullishness and pick up a few Nortel shares, or wait on the sidelines given the company’s recent over-promise and under-deliver history? […]

  2. Nokia and Siemens dance, Nortel jilted » Mathew Ingram: mathewingram.com/work Says:

    […] The end result is that Nortel has been unable to make much headway in the telecom or networking equipment market, and that hasn’t changed much lately, despite the best efforts of Mike Zafirovski, the new CEO. Now, the company finds itself even further behind, with the reported merger of the networking arms of Finland-based cellphone giant Nokia and German telecom equipment vendor Siemens AG. The deal as described would create a $30-billion equipment supplier that would rank up there with Lucent/Alcatel. And it removes the possibility of Nokia merging with Nortel, an idea that was recently floated by analyst Gus Papageorgiou. […]

  3. nelwina Says:

    Very Very nice information here… Thanks

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