Canada unlikely to block Ericsson-Nortel deal, but RIM keeps up pressure

The Canadian government is unlikely to block Ericsson's $1.13 billion purchase of Nortel networks' CDMA and LTE assets because the book value of the assets does not meet the threshold for government review, according to a Globe and Mail report. Nonetheless, Research In Motion is continuing to advocate that the deal be blocked on national security grounds.

Nortel values the assets that Ericsson is buying at $136 million, well below the $283 million threshold required for the Canadian government to use the Investment Canada Act to block the deal. If that is the case, the government could only block the deal on national security grounds or if it feels Nortel grossly undervalued the assets on its books.

The most important issue now in the saga remains this question of the threshold. The Canadian government changed the Act earlier this year so that the threshold standard reflects a deal's "enterprise value" instead of its book value. The enterprise value includes intellectual property and employees. However, the new rules have not yet gone into effect, and it remains unclear what standard the government will use. A senior Canadian government official told the Globe and Mail that, in the absence of new regulations, the government would use the old rules.

"With the current transaction, we've confirmed it will be book value" that is used as the threshold, a senior government official told the publication.

The court review period of the deal ended Tuesday, and RIM wasted no time in issuing a statement calling for the deal to be reviewed. "Now that the bankruptcy court's appeal period has passed, Industry Minister [Tony] Clement must examine very carefully how the Investment Canada Act applies to the proposed Nortel-Ericsson transaction," the statement said. "RIM believes that a $1.13-billion transaction must be reviewed to ensure that Canada's national interests are met."

RIM also sought to address the problems posed by not-yet-official changes to the Investment Canada Act. "If the draft regulations inadvertently exempt this type of transaction, then RIM calls on the government to use its legal ability to promptly adopt the final regulations under the Investment Canada Act," the company said.

For more:
- see this Globe and Mail article [1]
- see this Globe and Mail article [2]
- see this Financial Post article [3]

Related Articles:
Canada to examine Ericsson-Nortel deal [4]
Why is RIM trying to block the Ericsson-Nortel deal? [5]
Courts approve Ericsson-Nortel deal [6]
Canadian government mulls Ericsson-Nortel intervention [7]
Ericsson wins Nortel wireless assets for $1.1B [8]