Mark Evans

Analysts Diss Nortel-PEC deal

It took a day for Nortel analysts to get a handle on the company's US$455-million all-cash acquisition of PEC Solutions but there is now a verdict: they hate it. It has been quite some time since I've seen so many analysts be so negative about an acquisition but it was all there in black and white as the research started to surface. So what don't they like? For starters, they are having a difficult time figuring out why Nortel would buy an IT services business in a market - the U.S. government - that is growing by 4% a year. Nortel is buying 1,700 people so it can sell more telecom equipment to the U.S. government. The big problem with people - unlike hard assets - is they tend to leave. While it is important to be able to service clients, the feeling is Nortel could have better off focusing on a more dynamic market.
The most damning part of the analysts' critique today was the focus on whether Nortel CEO Bill Owens is the right person for the job, and the company's inability to articulate a vision for the future. Scotia Capital Gus Papageorgiou was the most blunt when he essentially accused Owens of being in over his head and falling back on his own background - U.S. military - in making such a major purchase rather than what is good for Nortel. For an equity analyst, this is , but refreshing, behaviour.
Hopefully, Nortel will offer some insight into its big-picture plans by Friday, which is the self-imposed deadline it set to release 2004 fourth-quarter and full-year results. Analysts have a lot of questions and growing concerns. With the analysts picking apart Owens' first major strategic initiative, you wonder how long it will be before Gary Daichendt, Nortel's highly-regarded president and COO, gets the CEO job.