http://news.moneycentral.msn.com/ticker/article.asp?Symbol=US:NT&Feed=RTR&Date=20040428&ID=3638871
UPDATE 4-Nortel fires CEO in accounting probe, stock plunges
April 28, 2004 5:17:00 PM ET
(Adds CEO interview, closing stock)
By Jeffrey Hodgson
TORONTO, April 28 (Reuters) - Nortel Networks Corp. (NT) fired its top three executives on Wednesday and said accounting problems already under investigation by regulators ran deeper than expected.
The surprise announcement from North America's largest maker of telecommunications equipment sent its shares plunging as investors speculated that an accounting review begun last year was developing into a full-blown financial scandal.
The Brampton, Ontario, company said it expected the restatement to halve 2003 earnings, but reduce losses previous years. It had reported an unaudited 2003 profit of $732 million in January.
Nortel named a former admiral as its new chief executive, and said first-quarter results would be delayed -- they had been due on Thursday.
"As a long-time observer of the industry, without being a lawyer, it would not surprise me to see various charges pressed against upper level management at Nortel," said Duncan Stewart, partner and portfolio manager with Tera Capital Corp.
"There is no question that the board said today there was no profit in the first half, yet these people paid themselves a profit bonus in the first half."
Shares of the one-time stock market darling plummeted C$2.18, or 29 percent, to C$5.40 in Toronto on volume of more than 101 million shares. In New York, Nortel sank $1.59 to $4.05 with more than 164 million shares traded
It was by far the most active stock on both exchanges.
"Nortel could bounce around like a ping-pong ball in a hurricane. On the one hand, the industry demand is good and Nortel is well positioned... On the other hand, think of all the possible headlines," said Bernstein Research analyst Paul Sagawa.
He said shareholder lawsuits are certain, indictments against company executives possible, and he expects the bad news to drive up Nortel's borrowing costs.
Ratings agency Standard & Poor's cut Nortel's ratings deeper into junk territory on increased risk it faces an "event of default and acceleration" of its debt.
Nortel said the restatement would not affect previously reported revenues or its cash balance, which was about $3.6 billion on March 31.
TERMINATED WITH CAUSE
The company said chief executive Frank Dunn had been "terminated for cause" and would be replaced by William Owens, a former vice chairman of the U.S. Joint Chiefs of Staff, who has been a Nortel director since 2002.
The author of a book "Lifting the Fog of War," Owens will now be responsible for lifting the fog shrouding Nortel's accounting.
Dunn could not be reached for comment.
Also fired with cause were chief financial officer Douglas Beatty and controller Michael Gollogly, both placed on paid leave of absence in March.
Nortel named William Kerr as chief financial officer and MaryAnne Pahapill as controller. They had been serving in the roles on an interim basis.
"The decision to terminate Frank Dunn was particularly difficult, but it is the right decision... The actions announced today by Nortel's board are about
accountability for financial reporting," chairman Lynton Wilson told analysts.
Asked if they could rule out the possibility of fraud, Nortel officials said it would be "inappropriate" to comment. They were unaware of any police investigation.
Nortel is under investigation by the U.S. Securities and Exchange Commission and by the Ontario Securities Commission.
It warned last October it would restate financial data going back to 2000, a year when its stock hit a record high of C$124.50, only to plunge 99 percent as the
tech bubble burst.
The initial restatement had little impact. But in March the company said a second restatement was needed, news that shocked investors.
Owens told Reuters he intends to lead Nortel beyond the completion of the accounting review.
"You should envision me as the longer term leader of Nortel. This was not taken as a caretaker or interim CEO," he said in one of his first interviews. (With
additional reporting by Rajiv Sekhri and Rachelle Younglai in Toronto and Ben Klayman in Chicago)
($1=$1.37 Canadian) REUTERS
UPDATE 4-Nortel fires CEO in accounting probe, stock plunges
April 28, 2004 5:17:00 PM ET
(Adds CEO interview, closing stock)
By Jeffrey Hodgson
TORONTO, April 28 (Reuters) - Nortel Networks Corp. (NT) fired its top three executives on Wednesday and said accounting problems already under investigation by regulators ran deeper than expected.
The surprise announcement from North America's largest maker of telecommunications equipment sent its shares plunging as investors speculated that an accounting review begun last year was developing into a full-blown financial scandal.
The Brampton, Ontario, company said it expected the restatement to halve 2003 earnings, but reduce losses previous years. It had reported an unaudited 2003 profit of $732 million in January.
Nortel named a former admiral as its new chief executive, and said first-quarter results would be delayed -- they had been due on Thursday.
"As a long-time observer of the industry, without being a lawyer, it would not surprise me to see various charges pressed against upper level management at Nortel," said Duncan Stewart, partner and portfolio manager with Tera Capital Corp.
"There is no question that the board said today there was no profit in the first half, yet these people paid themselves a profit bonus in the first half."
Shares of the one-time stock market darling plummeted C$2.18, or 29 percent, to C$5.40 in Toronto on volume of more than 101 million shares. In New York, Nortel sank $1.59 to $4.05 with more than 164 million shares traded
It was by far the most active stock on both exchanges.
"Nortel could bounce around like a ping-pong ball in a hurricane. On the one hand, the industry demand is good and Nortel is well positioned... On the other hand, think of all the possible headlines," said Bernstein Research analyst Paul Sagawa.
He said shareholder lawsuits are certain, indictments against company executives possible, and he expects the bad news to drive up Nortel's borrowing costs.
Ratings agency Standard & Poor's cut Nortel's ratings deeper into junk territory on increased risk it faces an "event of default and acceleration" of its debt.
Nortel said the restatement would not affect previously reported revenues or its cash balance, which was about $3.6 billion on March 31.
TERMINATED WITH CAUSE
The company said chief executive Frank Dunn had been "terminated for cause" and would be replaced by William Owens, a former vice chairman of the U.S. Joint Chiefs of Staff, who has been a Nortel director since 2002.
The author of a book "Lifting the Fog of War," Owens will now be responsible for lifting the fog shrouding Nortel's accounting.
Dunn could not be reached for comment.
Also fired with cause were chief financial officer Douglas Beatty and controller Michael Gollogly, both placed on paid leave of absence in March.
Nortel named William Kerr as chief financial officer and MaryAnne Pahapill as controller. They had been serving in the roles on an interim basis.
"The decision to terminate Frank Dunn was particularly difficult, but it is the right decision... The actions announced today by Nortel's board are about
accountability for financial reporting," chairman Lynton Wilson told analysts.
Asked if they could rule out the possibility of fraud, Nortel officials said it would be "inappropriate" to comment. They were unaware of any police investigation.
Nortel is under investigation by the U.S. Securities and Exchange Commission and by the Ontario Securities Commission.
It warned last October it would restate financial data going back to 2000, a year when its stock hit a record high of C$124.50, only to plunge 99 percent as the
tech bubble burst.
The initial restatement had little impact. But in March the company said a second restatement was needed, news that shocked investors.
Owens told Reuters he intends to lead Nortel beyond the completion of the accounting review.
"You should envision me as the longer term leader of Nortel. This was not taken as a caretaker or interim CEO," he said in one of his first interviews. (With
additional reporting by Rajiv Sekhri and Rachelle Younglai in Toronto and Ben Klayman in Chicago)
($1=$1.37 Canadian) REUTERS
they just put the earnings and profits in a wrong spot, but the earnings are still there, how big deal is that? The news sometimes bluffs much...
