Industry Committee on Aug. 7th, 2009

[George Riedel]

Mr. Lake, as I said, our mission is to maximize value. The focus on how that value ultimately gets distributed to the claims process is governed by two things, the law and the courts, and their guidance of that.

So my simple answer is that the best we can do is to continue to have a court-governed auction process, bid process, to maximize value so that those pensioners and employees can be best looked after through the court-approved claims process.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Before I move on, I'll just give you a quick opportunity to say anything to the pensioners and former workers who might be watching the proceedings today.

[George Riedel]

I have great empathy for their situation and I work hard for their benefit to produce maximum value. I certainly understand the human cost they're bearing, and my goal is to continue to do everything I and the company can do to improve their ultimate recovery.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Moving to the preserving of current jobs, you've said this is a specific goal for Nortel as you go through this process. Certainly, that has been a concern in some of the coverage that we've seen since the winning bid was announced—the preservation of jobs here in Canada, not just in the short term but also in the long term.

You've said this is a good deal for Canada. You've said this has been your goal and that you're happy with the outcome. How specifically does this deal preserve jobs here in Canada in the short and long terms?

[Richard Lowe, President, Carrier Networks, Nortel Networks Corporation]

Mr. Lake, if I could respond to that, as part of the stalking horse process and ultimately the auction, a minimum of 2,500 jobs were committed as part of the transaction. It doesn't specify that that is the total number, but it specifies a minimum. Of those, approximately 800 jobs are located in Canada, the majority of them in the Ottawa area. About 80% of them are actually R and D jobs. Those jobs are split between the mature technology and the next generation technology.

So one of the things we've been trying to do is to ensure that the buyer not only has the resources to maintain the current technology but also has an opportunity to use the resources we have in Canada to help them develop the next generation, or LTE, technology. So one of the outcomes we feel particularly good about is that they've expressed an interest in that scope for those resources—the over 600 resources in Ottawa—which will give an opportunity for those employees to continue to develop and hone their skills and to have that work remain in Canada.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

I'm just going to let one of the representatives of some of those employees, Mr. Royal Galipeau, take the rest of my time in this round.

[Royal Galipeau, Conservative, Ottawa—Orléans, ON]

Thank you, Mr. Chairman.

A very large number of Nortel employees live in Orleans, in the riding of Ottawa—Orleans, which it is my honour to represent in the House of Commons. Ultimately I very much regret that we are now in the position of resting on this carcass.

So I've come to this committee hearing quite focused on ensuring that Nortel employees are treated properly and fairly, and I'd just like to focus on that for the moment.

How would this sale be best for the current employees?

[George Riedel]

I could provide two pieces of input on that, one of which is from the customers.

We have developed some world-class LTE technology. Richard's team has done a phenomenal job. But the customers—the large North American and European and Asian customers—have been very direct with us that while they like our technology, they're not going to commit commercially to buy it, because they are concerned about our long-term viability. Hence, their very firm guidance to us was to get this asset in safe hands, that is, with a partner who can help invest in and develop the technology and the people over the next decade or so for it to see its optimal potential.

So if you ask the folks in this organization today if they're excited about the prospect of where they sit today and a future with Ericsson versus the challenge of where they were earlier in the year, having known the customers weren't going to buy the technology they were building, it's a far different answer you will get.

[Royal Galipeau, Conservative, Ottawa—Orléans, ON]

Many former employees who are concerned about their pensions have come to visit with me also. I realize that's primarily a provincial responsibility, but it doesn't prevent me from caring. How do you see the sale of these Nortel assets benefiting the pensioners? How do you line up those pensioners in the list of creditors?

[George Riedel]

Again, I want to acknowledge the human situation that exists on one hand, but the economic answer is that this is the best way to maximize the value for that asset. That value then gets distributed over time through the court process. That's the most efficient answer to their very human question.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Galipeau.

Thank you, Mr. Riedel.

We'll now move to Mr. Masse.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

Thank you, gentlemen, for appearing here today.

I'm going to continue with the pension issue because I think it's important. Perhaps you can shed some light on what's happening to a Canadian pensioner versus an American pensioner in terms of Nortel employees. Can you provide some information about the differences in those situations?

[George Riedel]

I'll attempt to do so.

Again, to go back to my earlier comment, there are multiple jurisdictions here in filing—U.S., Canada, and EMEA. The process for maximizing value through asset sales is under way. The distribution of those proceeds to the various claims will go through a settlement process across the estates and then a claims process for each of the different geographies to address that. Obviously the U.S., with the PBGC, has stepped in to address the shortfall in the U.S. pensions.

That's the short answer of where this goes: maximize value and let the court process deliver those proceeds through the claims.

[Derrick Tay]

Perhaps I can help in some of that.

The Canadian court has been very sensitive to employee and pension issues. In fact, there are things we can do and things that are out of our hands. What the law says as to distribution, who gets what and what priorities, is the law.

The court has retained, at the company's cost, representative counsel for all ex-employees, and it has retained representative counsel for continuing employees so that for all these issues, to the extent that there are issues that impact employees, the employees have legal representation at no cost to them. These people are overseeing the process—the sales process and the court process.

Also, the court has instituted just recently, in the last couple of weeks, a hardship program so that those employees who really are in a hardship situation have some recourse to get an advance on the money they would ultimately get as a claimant in the process.

[Brian Masse, NDP, Windsor West, ON]

I want to cut through the process a bit, to drill it down to the actual individual pensioner. A pension is a deferred wage. Not paying that is theft, in my opinion. That belongs to them. They've earned that. For every Canadian who pays into his or her pension as part of a negotiated contract, be it with a union or be it individually with their employer, it's supposed to be there.

Is it roughly correct that in the U.S., as things stand currently, not just because of Nortel but also some of the government programs they have to support, a pensioner right now will get around 60% of his or her pension, whereas a Canadian pensioner will get around 20% of his or her pension? Is that accurate?

[George Riedel]

I don't have those figures and facts. I couldn't comment on that. I just don't know.

[Derrick Tay]

Given that it's a legal issue, the assets that have been set aside in the pension, the trust assets, belong to the employees. They do not fall within the bankrupt estate, nor do any creditors have any exposure to that. The value of those pension assets is a function, in part, of the market. It's the same thing whether it's a bankrupt company or a solvent company. That's why a lot of companies, most companies, have a pension deficit.

The point is that there is nothing in this process that takes away the value from the pension plan. It cannot, because those assets do not belong to the company.

[Brian Masse, NDP, Windsor West, ON]

Right now in the U.S., their government has backstopped some of those pensions. That's the difference in what's happening for the employees.

I want to go back to your comments with regard to the book value. What is the book value you're estimating, how did you come to that conclusion, and has that been substantiated by any other parties?

[George Riedel]

The analysis was on a set of assets that would be transferred or carved out. If you think about Nortel as one global integrated company, in order to sell these assets, we had to carve out these businesses, with a P and L, a balance sheet, and the like. That analysis was done both on our part and in conjunction with PricewaterhouseCoopers. The combination of the assets being transferred, both fixed assets and current assets, totals $149 million U.S. That has been shared with Industry Canada.

[Brian Masse, NDP, Windsor West, ON]

Are you familiar with the fact that the Investment Canada Act has now moved away from book value to enterprise value?

[George Riedel]

I understand there was a new finding from the Wilson committee to do that, at least as of July 12, where the current record still is that it's a book value test.

[Brian Masse, NDP, Windsor West, ON]

It's up to the government to decide, because the legislation has been passed, so that will change. Once again, that's an estimated cost.

In general, in terms of the technology, I think it's important to perhaps shed a little light on that. Also in general, not necessarily to Nortel but for any company that is developing a patent in technology, moving it to market, what's the difference in the benefit to the company between moving an actual patent to the market versus selling it off and then becoming a servant of that product in the market?

[Richard Lowe]

The patents we have taken for the CDMA business, as an example, are patents that are predominantly used by that technology and are actually being sold with that asset sale.

In the case of the LTE assets, there is a non-exclusive licence around the field of use of infrastructure that is going with the transaction. It does not preclude those particular patents from subsequently being the subject of another process, so there are actually two different situations that we're dealing with here. Only a subset of the patents are actually being sold, and only those associated with the CDMA business.

[Brian Masse, NDP, Windsor West, ON]

How many patents in total are being sold with the Ericsson proposal, and then how many more patents do you anticipate the sale of in the upcoming future?

[George Riedel]

There are 109 patent families being sold as part of the existing transaction. We have in total 5,069 patent families.

It's important to note that probably about 40% of those 5,000 patent families are in fact being mapped to be sold with the assets, meaning that whether it's the enterprise business that we've announced or the CDMA/LTE, the buyer will want certain intellectual property with those assets.