Nortel Networks (fka NRTLQ)

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Nortel Buyout incentives....

Lets not forget other incentives..

- Huge customer base (10+ billion in sales last year)
- Many patents (Intellectual property)
- Top of class products (find me one person that says there products are not good)


http://www.financialpost.com/story.html?id=1187176

Nortel Networks Corp. is sitting on approximately $1.4-billion of research-and-development tax credits, an asset so lucrative it could complicate the list of possible firms interested in buying the troubled telecom-equipment giant.

Company sources told the Financial Post that Nortel, which filed for bankruptcy protection in the United States and Canada on Wednesday, has the huge sum of federal and provincial tax credits but has not had a profit in some time to claim them against.

Tax experts say the credits could be reimbursed by the company that acquires Nortel, but only if certain conditions set by Ottawa are met: The buyer must operate in Canada, be profitable and conduct business in a similar industry.

Companies that fit that bill could include wireless operator Telus Corp., BlackBerry maker Research In Motion Ltd., IBM's Canada operations or Cisco Systems Inc.'s Canadian subsidiary.

"The company that buys [Nortel] can instantly offset their profits against the tax credits," said Ronald Freeman, a telecom consultant that specializes in R&D spending. "In fact, they can make money on the deal. It's terrific."


With some restrictions, companies receive 35% of R&D spending back in Scientific Research and Experimental Development investment tax credits from Ottawa. Ontario has a similar tax credit program, which is tied to how much the company is awarded federally.

However, companies that cannot report a net income when filing taxes to Revenue Canada can opt to defer their tax credits for up to 20 years. Nortel has reported profits in only two years since 1998 and has accumulated $1.4-billion in unused tax credits on its books.

"The unused tax credits certainly could be quite valuable if someone could access and use it on a carry-forward basis," said Jack Mintz, an international fiscal and tax policy expert and public policy professor at the University of Calgary.

The unused tax credits would not only give a Canadian company a "leg up" against foreign competitors, but it could also take a substantial amount of money out of the federal government's coffers, Mr. Freeman said.

The issue of how to parcel off its tax credits could become a headache for the company if it sells off its core business units separately, said Ramy Elitzur, a professor at the University of Toronto's Rotman School of Management.

"Even if you buy parts of Nortel, what do you do with the liabilities?" Mr. Elitzur asked. "The true value of their resources and assets is below the liabilities they have."

In court filings made public on Wednesday, Nortel has total liabilities of US$12-billion and more than US$4-billion in unsecured public debt, while its cash position at Dec. 31 was US$2.4-billion, according to court documents. It closed yesterday's session on the Toronto Stock Exchange down 13% to 10¢ and has a market capitalization of US$49.8-million.

Nortel has consistently led Canadian R&D spending, recently spending $1.8-billion in 2007. The company's commitment to innovation, even during numerous rounds of R&D cuts, easily outpaces spending by telecom giant BCE Inc. at $1.2-billion and auto parts firm Magna International Inc. at $725-million.

Along with a consortium of Canadian technology firms, Nortel lobbied the Canadian government in February, 2007, to allow them to use leftover R&D tax credits to reduce the chances that companies with poor balance sheets but heavy research investment would be taken over by opportunistic buyers.

Nortel spokesman Mohammed Nakhooda declined to comment on how much unused R&D tax credits the company currently has.