RIM says it had deal with Nortel

Ottawa — Globe and Mail Update

A sign is pictured outside Nortel's Carling Campus in Ottawa July 24, 2009 (CHRIS WATTIE)

Research In Motion Ltd.'s co-CEO said Friday the BlackBerry maker twice had "handshake" deals to buy some Nortel Networks Corp. assets.

Mike Lazaridis told a parliamentary committee hearing one deal came just before Nortel filed for bankruptcy protection, and a larger one just before Nortel surprised the company by announcing a stalking-horse bid from Nokia-Siemens Networks. "We felt like we were snookered," Mr. Lazaridis said.

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Mr. Lazaridis used the hearing Friday to urge Ottawa to intervene and broker the reopening of the court-approved sale of wireless assets, which went to Telefon AB LM Ericsson , another bidder in the process.

Mr. Lazaridis called for intervention by Industry Minister Tony Clement. But Ericsson quickly rejected the idea, saying the deal can't be changed, and should sail forward without a foreign-investment review by Ottawa.

In hearings on the Nortel deal, RIM executives added new details to their claim that their efforts to make a bid for the assets was blocked, and lobbied for a second chance.

Nortel and Ericsson insist the book value of the assets is not enough to trigger the government to launch a foreign investment review. But Waterloo, Ont.-based RIM argued it should be reviewed on grounds of national security, suggesting that a foreign sale could make government and police phones more vulnerable to eavesdropping.

Mr. Lazaridis said Mr. Clement should first try to settle the issue by gathering together executives from Ericsson, Nortel and RIM to try to strike a new deal under which RIM could get the asset pieces it wants. "Minister Clement's stature is such that he may well be able to fashion over the next few weeks an outcome that serves the interests of all parties, and of Canadians," Mr. Lazaridis told the Commons industry committee.

Ericsson Canada president Mark Henderson rejected the idea. "If you try to redefine the bankruptcy process, the auction, you'll open up a whole can of worms," he told the MPs.

Mr. Henderson added that nixing the deal could be a bad message to send on foreign investment in Canada. "It's not the greatest signal to send out there," he said.

Mr. Clement's spokesman, Darren Cunningham, said the minister would not comment because bidders still have time to appeal the sale. But government officials said they have no power to summon Ericsson to broker a new deal.

Although Ericsson is to pay $1.13-billion for the Nortel assets, both it and Nortel argue their book value is $149-million - not enough to trigger a review under foreign investment laws of whether it will benefit Canada. Meanwhile, Nortel CEO Mike Zafirovski is expected the leave Nortel within weeks, according to a Wall Street Journal report.

Political pressure is mounting for a review, however, with both the Liberals and NDP calling for the government to examine the impact on the tech sector and national security.

Ericsson won a court auction for Nortel's existing CDMA (code division multiple access) wireless business and licences to use its next-generation technology, known as long-term evolution, or LTE. Nortel still owns patents for LTE technology, but Mr. Lazaridis said the sale of broad licence rights cut their value to RIM.

He testified that RIM twice had "handshake" deals to buy some LTE assets - once before Nortel filed for bankruptcy protection, and a larger one just before Nortel surprised the company by announcing a stalking-horse bid from Nokia-Siemens Networks that included broad LTE licences.

"We felt like we were snookered," Mr. Lazaridis said.

He said RIM did not want to buy networks without other LTE assets, such as patents, nor buy the patents if broad licence rights were sold to another. RIM did not submit a bid, he said, because Nortel required the company to sign a "standstill" clause that would have prevented it from bidding for other Nortel assets, such as the LTE patents, for a year.

Mr. Lazaridis likened the sale of the Nortel technology to the Diefenbaker-era cancellation of the Avro Arrow aircraft, still a controversial move decades later. He suggested that wireless networks used by police, military and government could be subject to eavesdropping if Canada does not control wireless technology development.

Mr. Henderson noted that Nortel's LTE patents can still be licensed to others, and that Ericsson already supplies Canada's government and military.

"It's just hard for us to understand the foundation of those comments and where a threat to national security would come from," Mr. Henderson said.