Telecom: Mike Z steps down, says Nortel 'stabilizing'

J. Sturgeon | Financial Post | Aug. 11, 2009

In November 2005, he was hired by Nortel Networks Corp. to open a new chapter for the struggling telecommunications firm. Almost four years later, Mike Zafirovski has left Nortel as it moves through what most say is its last.

Monday, Mr. Zafirovski stepped down as chief executive of the bankrupt firm, as did most of Nortel's board of directors.

The decision, which comes as the Toronto-based company is in the process of selling off all of its business operations, was jointly made by Mr. Zafirovski, Nortel's bankruptcy monitor Ernst & Young Inc. and the company's creditor committee.

In an interview, the 55-year-old executive said the decision to go was made because the company, while still losing considerable amounts of money, was "stabilizing" now and that it was in the best interest of all for him and certain board members to step aside.

Nortel's two largest business units have or are on the verge of being acquired by rivals while Nortel is in advanced talks to sell its remaining units. The moves put the company's employees and technological legacy on a secure and "promising path," he said.

The announcement coincided with the release of Nortel's second-quarter results, which showed the company lost US$274-million during Mr. Zafirovski's final three months at the helm, more than double the loss from the same quarter a year ago. Revenue declined 25% to US$1.97-billion.

However, revenue did increase 14% quarter over quarter, indicating some customers are gaining more confidence that the company will honour future contract obligations - or at least whatever company acquires its businesses will.

Mr. Zafirovski said in June that Nortel would sell all its divisions through so-called "stalking horse" auctions as it tries to pay back creditors. The court-supervised sales are designed to set a floor price on the assets and encourage rival bids.

Last month, the company sold its major wireless business, which makes network equipment for mobile-phone carriers, to Sweden's Ericsson for US$1.13-billion. That bid trumped a US$650-million offer from fellow European giant Nokia Siemens Networks. Avaya Inc. has placed an initial US$475-million bid for the Enterprise unit, Nortel's second biggest by revenues, which develops networks for large corporations. An auction is slated for early next month.

"Frankly, we've done a pretty significant job of stabilizing the company, producing good results and increased the interest in our businesses from buyers," Mr. Zafirovski said of Nortel's performance since its bankruptcy filing on Jan. 14.

The 127-year-old company was forced to seek bankruptcy protection after its turnaround plans were sideswiped by the economic downturn last year, Mr. Zafirovski said.

"We were there in the middle of 2008," he said adding that he and other senior managers worked tirelessly to overcome the accounting scandals and related legal woes with investors that had plagued the firm since before his arrival.

He said he expected growth in most of the company's markets last year until the recession hit, leading to double-digit declines in sales across the telecommunications industry.

"We certainly did not have the flexibility to withstand that," he said.

More than a dozen appeals to the federal government made between October and January were rebuffed, Mr. Zafirovski said, as lawmakers were not convinced a bailout would save the firm. "I feel it's something the government should have done," he said. "I understand why it wasn't, but certainly we believe we provided a compelling case."

Alongside Mr. Zafirovski, five directors left the company yesterday. Chairman Harry Pearce as well as John Manley, James Hunt, Richard McCormick and Claude Mongeau stepped down.

Pavi Binning, Nortel's chief restructuring and financial officer will remain to manage operations for the time being. Nortel is also seeking a greater role for Ernst & Young, its court-appointed monitor, in its restructuring activities.

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News: Jobs drought hits Ontario and Alberta

By J. Sturgeon | Financial Post | 03. 14. 2009

Once considered Canada's twin economic engines, Ontario and Alberta continued to lose steam in February, taking the lion's share of job losses and led by a notable decline in construction employment.

The Canadian economy shed a worse-than-expected 82,600 jobs last month, with more than half coming from Ontario, where the construction sector replaced manufacturing as the main industry to be sideswiped by a deepening U. S. recession.

Last month's reading pushed the province's unemployment rate to 8.7%, a full percentage point over the current national jobless rate and the highest level since April, 1997.

"There's no question that Ontario is bearing the brunt of the weakness," said Douglas Porter, deputy chief economist at BMO Capital Markets, in an interview.

About 28,000 construction jobs were purged from payrolls as housing starts continued to moderate in Ontario amid slumping real-estate demand.

"February finally saw building activity catch up with labour-market realities," said Meny Grauman, senior economist at CIBC World Markets.

Other sectors felt the bite as well, with finance, insurance and real estate combining to shed 19,000 jobs.

In contrast, manufacturers -- the source of much of the blood-letting in recent months --added 14,000 positions.

The additions were a surprising development given the grim export environment for goods bound for a recession-plagued United States. However, it was "literally a dead-cat bounce," said Mr. Porter, given "the steep drop in U. S. auto sales and the massive decline in auto production and other manufacturing sectors around the turn of the year."

February's purge mirrors Ontario's experience since Canada's labour market first began to buckle last October. The province has now absorbed just over half of the country's total job losses in the period, or 160,000 positions.

"That's one interesting feature of this report -- just how far Ontario's unemployment rate has risen above the national average," Mr. Porter said. "It's unheard of."

In particular, Mr. Porter noted that Ontario's unemployment rate remained higher than Quebec's for the second month in a row.

Ontario's unemployment rate eclipsed Quebec's for the first time on record in January.

"This is an important development," he said. "It really plays up how much Ontario's economy has suffered in the past year, in particular as manufacturing has struggled."

Since October, Ontario's unemployment rate has risen two full percentage points, with increases concentrated in southwestern Ontario, where the Canadian auto industry is centred, said CIBC's Mr. Grauman.

Unemployment in Quebec edged up 0.2 percentage points in February to 7.9% as 18,000 jobs were lost, led by 11,000 health-care positions.

"Ontario getting above Quebec is unusual in its own right and to be that much above speaks volumes," Mr. Porter said.

Yet the most-populous province in the country wasn't alone, as plunging commodity prices finally spilled over into the construction and manufacturing sectors of Alberta, resulting in a steep rise in unemployment in that province.

"We are seeing job losses move out [west]," Mr. Grauman said. Alberta shed 24,000 jobs last month, pushing the unemployment rate to 5.4%.

Oil's plunge has chilled construction in the oil sands as well as Alberta's once-torrid housing market, eliminating 9,000 construction jobs in February. Another 10,000 jobs were lost in the province's manufacturing sector. The remaining 13,000 were culled from the education sector.

Alberta unemployment now sits at its highest level in six years. As commodity prices remain depressed, the province is expected to lose more jobs in the months ahead, Mr. Grauman said.

"The weakness in the labour market started later there but it's definitely going to continue."

jasturgeon@nationalpost.com

Magna Entertainment's race may be run

By J. Sturgeon | Financial Post | Feb. 19

Frank Stronach's debt-plagued Magna Entertainment Corp. appears on the verge of financial collapse after the money-losing horse racetrack business said it may not be able to repay looming obligations, adding to the Canadian entrepreneur's woes as his car-parts company struggles to weather the crisis hammering the auto industry.

The Toronto Stock Exchange placed MEC under review on Thursday for a possible delisting on an "expedited basis" signalling the company is at or nearing insolvency, according to the bourse's listing rules.

The review comes in the wake of a collapsed plan that would have seen MEC's controlling shareholder, MI Developments Inc. (MID), spin off its majority stake in exchange for additional capital support in the form of temporary loans.

That plan disintegrated this week after MID said new debt financing for the deal was "unlikely" to be found, given "current global economic conditions [and] the continued disruptions in the financial markets."

As a result, US$274-million in outstanding loans that MEC owes MID will be called in next month, potentially triggering a feeding frenzy among MEC's other creditors.

If it is unable to repay that sum alongside an outstanding balance on a US$40-million credit facility to an unnamed Canadian chartered bank, "substantially all of its other current and long-term debt will also become due on demand," the company said.

MEC reported in its latest quarterly results it has more than US$600-million in debt sitting on its balance sheet. MEC has been attempting to sell assets including several racetracks for months to service debt.

MEC, the largest owner of horse racetracks in North America including Santa Anita in California, said negotiations with MID are continuing, which may include an extension on the repayment date of Mar. 20.

The possibility of a reprieve does exist.

"Look who the lender is and look at what the lender has done in the past," said an analyst that follows the company on Thursday. "Payment dates have come and gone."

MID has pumped hundreds of millions into MEC, which has lost at least US$500-million since 2003, and routinely granted extensions on loan repayments.

The latest came in October when MEC's board approved an extension on a $125-million bridge loan.

"The question you have to ask is, is the lender going to continue to?" the analyst said.

Minority shareholders in MID have grown intensely hostile toward the seemingly unbridled financial support it has given the gambling and horse-racing business.

The collapsed deal was designed to rid MID of its interests in MEC and place stringent rules on any future transactions between the two firms.

Shares in MEC plummeted more than 24% to an even 50¢ on the TSX on Thursday. MID's stock price fell 6% to $7.87. Calls to MEC and MID were not returned. Mr. Stronach is the chairman of both companies.

MEC's precarious situation is compounding the magnate's difficulties as Magna International Inc. faces off against the worst crisis to hit the auto industry in the post-war period.

The company, which he founded, reported its first quarterly loss in 17 years in November and said it was braced for a lengthy auto-sales slump in North America and Europe.

Magna, which has shuttered plants and initiated layoffs to combat the crisis, is set to report fourth-quarter results next week.

Feature: No jolly season for Ontario manufacturing workers

By Jamie Sturgeon | Financial Post | 11. 28. 08

Scores of manufacturing workers in Ontario won't be pried from family gatherings because of work this holiday season but not for a reason they're likely happy about.

In what may well be remembered as the Christmas Ontario's factories went silent, manufacturers from cars to steel are shutting down operations to clear bulging inventories and save cash, forcing an unpaid vacation upon thousands of their employees.

Thursday, Hamilton's rusting steelworks were caught in a mounting economic downdraft that has already resulted in a series of unusually prolonged production freezes at auto-manufacturing plants in the province.

ArcelorMittel, the biggest steel producer in the world, said it will be shuttering its Dofasco plant for a two-week period beginning Dec. 21 in an effort to slash $1-billion in company-wide spending.

Some 5,000 workers will go without pay during that time.

The stoppage is also designed to alleviate rising inventory levels, said company spokesman Larry Meyer.

Steadily falling demand across the economy has hit virtually every manufacturer regardless of industry. Steel, a building block in countless products, is no exception.

"It's not a surprise," said Wayne Fraser, president of the United Steelworkers Canada. Production has be slowing for months at Canadian smelters, he said, adding that member workers are braced for similar announcements from others.

"Companies are preparing for the worst. We have to be patient and hope this thing turns around."

Limited Christmas shutdowns are normal for Ontario's auto assembly factories, but this year is different.

U.S. auto sales have plunged 12 straight months through October to lows not seen since 1991 as consumers defer spending. And Canadian plants, which ship almost every vehicle they produce to the United States, are cranking down output far more than in previous years.

General Motors Corp., the largest vehicle producer in Canada and the U.S., is extending the typical Christmas shutdown of its Oshawa, Ont. car plant and the CAMI Automotive Inc. plant it shares with Suzuki Motor well into January.

The automaker is also idling its Oshawa pickup plant, which makes the Chevrolet Silverado and GMC Sierra trucks, for four weeks starting Dec.15, said company spokesperson Patty Faith.

"We don't typically take [inventory adjustments] in December," Ms. Faith said. "Of course, nothing about this year is typical."

GM's U.S. sales last month plunged 45% while Chrysler LLC's dropped 35% and Ford's fell 30%. All three automakers are readying "viability" plans due to Congress by Dec. 2 as part of their bid to win US$25-billion in emergency aid.

The companies are also asking the Canadian and Ontario governments for financial help.

Ford's assembly plant in Oakville, Ont. will be idled four weeks starting Dec.15 to adjust inventory, said company official Lauren More. Ford's St. Thomas, Ont. factory will suspend production for four weeks starting Dec. 8, she said.

Privately-held Chrysler confirmed only that its Brampton, Ont. factory would be shut down next week.

Tighter credit markets are serving to exacerbate the downturn, as companies are forced to stockpile cash for common functions they would normally be able to borrow for, like payroll, said Michael Gregory, a senior economist at BMO Capital Markets.

As a result, temporary production halts in industries traditionally unaccustomed to using the tactic are beginning to look long and hard at the option.

"Manufacturers across the board are looking at ways to pare back," he said.

"Will this become more of a norm going forward? Well, that will depend on what happens in the U.S. economy."

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News: Auto bailout tip of iceberg: JP Morgan

By Jamie Sturgeon Financial Post 11.25.08

The tens of billions of U.S. taxpayer dollars being asked for by Detroit could be the tip of the iceberg, analysts at JP Morgan said Tuesday.

With Congress preparing to hand struggling automakers General Motors Corp., Ford Motor Co. and Chrysler LLC US$25-billion in loans, JP Morgan analysts said any emergency cash would just be a lifeline until Barack Obama's administration takes over in January.

Mr. Obama's economic team would be put to work quickly, tasked with crafting a second, more comprehensive bailout package involving concessions from creditors and labour in what would amount to a sweeping restructuring of the Big Three.

Structural costs would be a primary target under any Washington-brokered overhaul, JP Morgan said, with concession from creditors and the United Auto Workers "inevitable."

The so-called "shared sacrifice scenario" would take months to negotiate, analysts said, likely equating to further injections of operating capital for Detroit.

What all of this means for Canada, which has already shed more than 10,700 auto-manufacturing jobs this year, is uncertain.

Ottawa, too, is mulling a co-ordinated effort to prop up the North American industry, as GM, Ford and Chrysler's Canadian operations pine for up to $6.5-billion in loan guarantees here.

What is certain is that a significant turnaround is of paramount importance. Reeling from a maelstrom of economic headwinds, Canadian auto manufacturers are expected to collectively lose $1.7-billion this year, according to a report by the Conference Board of Canada, also published Tuesday. The loss will be the third in as many years.

Moreover, as demand crashes in the United States, where 90% of Canadian automotive production heads to, 2009 is shaping up to be equally as bleak. New vehicle sales are expected to fall to their lowest point since 1992, leading to another loss of more than $1-billion.

The decline in the Canadian dollar will provide little support, the Ottawa-based independent research association said, adding it expects the loonie to recover to US85¢.

"At this level, the dollar dampens prospects for vehicle exporters, who are being forced to contend with competitive headwinds from low-cost foreign suppliers and more competitive U.S. labour settlements."

Another certainty is that the lines of communication between the federal Conservatives and the Canadian Auto Workers union are quiet for the time being.

Industry Minister Tony Clement said on Monday any restructuring effort would require concessions from the union, but has yet to begin in earnest any dialog with CAW officials.

"He's not talked to me. I've sent him a letter asking for a meeting," said Ken Lewenza, CAW president. "He has not followed up in terms of talking to us about what role the labour movement can play. And until I hear from [the Minister], I prefer to continue to do what we've been doing, and that's building cars."

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News: Investors yank even more from mutual funds

Jamie Sturgeon | Financial Post | 11.05.08

September's record rush for the exits by Canadian mutual fund investors grew to a full-on stampede last month as they pulled more than $8.2-billion of their savings out of volatile financial markets, preliminary data showed Tuesday.

Net redemptions from mutual funds for October are estimated to total between $8.2-billion to $8.7-billion, the Investment Funds Institute of Canada said, far exceeding the $4.5-billion redeemed in September.

IFIC estimated that net assets across the mutual fund industry fell 10% to $633.6-billion.

The news Tuesday came just hours after new data from mutual fund research firm Morningstar Canada showed virtually every mutual-fund category suffered sharp declines of 10% or more in October.

"These are some of the ugliest numbers," said Philip Lee, a fund analyst for Morningstar, who said most fund categories suffered their worst drops since the Russian financial crisis in 1998 and market crash of 1987.

"Some of the funds could have been uglier if we didn't get that big currency move."

All but four of 43 fund indexes -- a basket of mutual funds within one category such as U.S. equity or real estate-based funds, for example -- tracked by Morningstar suffered losses, as markets tumbled and credit circulation "came to a grinding halt," Morningstar said in a report measuring the change in funds' net asset values per share.

Twenty fund categories in all declined more than 10% over the 31-day period.

Indeed, a rally to the U.S. greenback followed by some respite on American equity markets in the last four trading sessions of the month staved off even deeper declines in some categories, Mr. Lee said.

The historic run-up in the interbank lending rate, or Libor, through the first half of October exacerbated investor anxiety, Mr. Lee said, triggering massive sell-offs among mutual funds. "Credit essentially came to a grinding halt in the middle of the month," he said.

Indexes that tracked financial funds - once the definition of stability in equities - as well as other blue chip stocks absorbed declines between 13-18%, Morningstar's data showed. The domestic financial services index fell 15.1% led by an almost identical fall in the category's biggest fund, the iShares CDN Financial Sector Index.

Precious metals and other commodity-laden fund indexes witnessed declines of 30% or more in October as investors fretted that demand in energy and base materials was evaporating. "[The declines] certainly didn't play out well for the Canadian equity market, which is heavily influenced by energy and materials stocks," Mr. Lee said.

Not surprisingly, the four fund indices that did not lose ground were global fixed-income, which actually earned 4.5% "primarily on currency moves" in the month, Mr. Lee said; Canadian short-term fixed-income, advancing 0.6%; and Canadian and U.S. money market funds, with almost negligible returns of 0.04% and 0.02%, respectively.

The 12.9% rise in the greenback against the Canadian dollar in October benefited "any fund that owned a U.S. bond," Mr. Lee said. "You're getting that currency kick."

Feature: Helping get small business around big rules

By Jamie Sturgeon | Financial Post | 10.27.2008

If necessity is the mother of invention, regulation must surely be its unwanted sibling.

It was mid-September in a small boardroom on Bay Street when the thought occurred. Oscar Jofre (pictured, above),the 43-year-old chief executive of BoardSuite, had just run down a laundry list of requirements that new legislation introduced last spring had imposed on business.

In June, Bill C-25, a federally-mandated expansion of The Proceeds of Crime, Money Laundering and Terrorist Act, came into force, requiring banks to collect information on virtually every stakeholder, financial interest and transaction for every incorporated account holder.

"That touches six and a half million commercial accounts currently open with all major banks in Canada," Mr. Jofre said. "It doesn't matter if it's private or not-for-profit; every single one of these entities will have to adhere to the new banking laws."

The expansion was built on rules erected in the wake of the Sept. 11, terrorist attacks in the United States, as well as the accounting scandals of Enron in the United States and Nortel Networks Corp., to keep tabs on illicit bookkeeping.

It has become the latest regulatory cross all businesses big and small must bear.

That was in mid-September, when the towers a few blocks south were just beginning to feel the bite from the biggest failure in regulation in living memory. What will the fallout be from the current financial crisis? Even more rules, said Mr. Jofre, whose firm, BoardSuite (www.boardsuite.ca) aims to make corporate record-keeping more transparent and cheaper than ever before.

Through an easily navigable Web site, the firm has streamlined that process from the smallest tasks like tracking events on a calendar and maintaining the minute book, to mandatory obligations such as insurance reapplications and annual return filings.

Some company data must still be manually inputted into the system; however, once it's there, it stays on the record.

Concerned about complying with Bill C-25 at the risk of having an account frozen? "[BoardSuite] has all the data organized and sent to the bank rep without encumbering your business operations," said Dean Peloso, a former Toronto Stock Exchange regulator. "It's the institutional repository for all this information.

"All the elements you normally rely on your professionals to tell you to do, it's now telling you," said the 50-year-old career regulator who helped design Sedar, the electronic filing system for Canadian public companies.

Mr. Peloso's involvement with BoardSuite, where he's a director, is a testament to the rigorous planning that went into the product early on, Mr. Jofre said.

It was in 2003 when Mr. Jofre, an entrepreneur from Edmonton, learned his lesson in the regulatory pitfalls small businesses can stumble into.

A routine offering memorandum transferring assets from his company to another filed with the Alberta Securities Commission failed to disclose a bankruptcy of one of its officers.

The commission returned the filing and fined each director and Mr. Jofre $3,500, he said.

"It was in the minute book, the shareholders knew ... that wasn't the issue. Guess what the issue was -- one little line in the first page ... indicated no director or officer had filed for bankruptcy in the last 10 years. "The lawyer's backing away saying, 'It's not my responsibility,' but yet he's got the book. At the end of the day, I have to know exactly what I'm signing," he said. "The only way you can do that is by having access to information. That's the reason Board-Suite got started."

Of course, having the information on an encrypted Web site is another caveat of the service.

It's accessible around the clock anywhere there's an Internet connection. But perhaps best of all, BoardSuite is absolutely free. At least, it is to the company using it.

Through partnering with major service providers such as Aon Corp., the largest insurance broker in the world, BoardSuite can offer itself for free to clients. It generates income through service fees from Aon and other partners every time a company uses a partner's service.

Not that clients are compelled to use BoardSuite's sponsors, Mr. Peloso said, but "we think they will. It's easier, it's going to save them [time] and money and it's going to be that much more convenient."

"By helping your organization, we help the partners and everybody wins," Mr. Jofre said. Since mid-September, the financial crisis has deepened with the possibility of a recession looming. The talk of increased regulation has begun in earnest.

While it may be good news for BoardSuite, it likely means more red tape for businesses of all sizes.

"This will only impose more regulations," Mr. Peloso said. "Just like last time, the really big mistakes are made by the really big corporations, but the rules are made for all. The small guys end up having to live with the new rules. So you have to organize yourself better."

jasturgeon@nationalpost.com

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News: IPOs grind to halt in North America

"Everybody say IPO ..." Source: WJS

By Jamie Sturgeon, Financial Post | 10.03.2008

Unprecedented uncertainty in capital markets has wilted all demand for initial public offerings in North America.

In Canada, not a single IPO was launched on the Toronto Stock Exchange in the third quarter, marking the first quarter in at least a decade that Canada's largest equities market failed to attract a new listing, according to a report from PricewaterhouseCoopers.

"Over the years we've been doing this, I don't think there's ever been a quarter or six-month period with zero," Ross Sinclair, partner and national leader for PwC's IPO and income trust services, said yesterday.

Indeed, the previous low for new TSX offerings was in the third quarter of 2007, when four issues raised $254-million.

For the year, there has been a total of 53 offerings launched across all Canadian exchanges, raising $680-million, marking the slowest pace of new offerings since PwC began tracking Canadian IPOs in 1998.

In contrast, 63 offerings were made through the first three-quarters of 2007, totalling $1.2-billion. Two years ago, 95 new issues valued at $4.7-billion were brought to market through the first three quarters.

"You're looking at a market that used to generate five or six billion dollars to now hundreds of millions -- it's down to a trickle," Mr. Sinclair said. "There's nothing happening."

Activity for the three months ending Sept. 30 would be at a virtual standstill if not for the 14 new issues on Toronto's Venture Exchange, which raised $66-million.

The downtrend partly follows a long-term slowing in IPOs dating back to late 2006. It was then that new federal taxation curtailed the explosion of income trusts -- a significant driver of new issues at the time.

Yet the "worsening environment" in capital markets through the year culminating in September has dried up demand wholesale, Mr. Sinclair said.

"A market is a meeting point for a willing buyer and a willing seller, and until some degree of stability returns, and we regain some certainty and predictability, we won't have a market," he said.

Moreover, given unfolding events, "there's not much hope for much IPO activity throughout the rest of 2008."

The bleak assessment extends south of the border.

Not a single American company attempted a public offering in September, according to an IPO tracking service, Hoover's Inc.

It's indicative of the constricted position the remaining underwriters on Wall Street are in as investment banks typically contribute their own capital to a client's public offering, said Tim Walker, IPO research manager at Austin, Tex.-based Hoover's.

"There's no stability in the market," he said.

According to Hoover's data, a mere five IPOs were launched across all American exchanges in the third quarter, raising US$917-million. A year earlier, there were 38 offerings valued at more than 10 times that.

The results bring the amount of new issues in the U. S. for the year to 30 companies, compared with 134 through the first three quarters last year, and 133 in 2006.

Total proceeds from this year's U. S. IPOs are US$24-billion. A "low" figure, Mr. Walker said, but even more disconcerting when one considers that US$18-billion or 75% of that stems from the IPO of Visa in March.

"That's what tells you how abysmal this IPO market is."

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Tough times call for ...