Nortel shares slide on financing concerns
Nortel Networks shares hit a new low for the second day in a row as analysts say the telecommunications equipment giant's financing troubles are far from over.
Shares of the Canadian telecommunications equipment giant were down 20 cents, or 11 percent, to $1.60 as analysts came out with grim predictions for the company's ongoing financial problems.
Its shares had already fallen around 14 percent Tuesday after news that a new $800 million round of financing will dilute the company's stock. That made the stock the lowest it's ever been in the 10 years the Nasdaq has been keeping track. Shares traded at lows of around $3.50 in 1994 and hit highs of more than $80 in the fall of 2000.
Nortel said late Monday that it will raise proceeds of $800 million by issuing a combination of new shares and equity units. The company said the deal will involve around 150 million common shares, but it has not disclosed what the "equity units" are. Analysts expect the deal to be completed by Thursday, but they said it will only get the company around half the money it needs.
This isn't Nortel's first attempt to shore up its finances. The company said last week that it would cut jobs and sell off its optical component division. Nortel isn't alone either; other telecom companies, including Lucent Technologies, have been suffering.
Analysts also said the current financing measures would only help out for the short term. Prudential Securities analyst Inder Singh said $800 million will only get the company half way to covering its near-term funding needs, and the analyst predicted the money is likely to run out after another few quarters.
"We believe the company will still need to raise another ($750 million) to $1 billion from either asset sales or additional equity (or) equity-like issues over the next year," Singh wrote in a research note Tuesday.
Ariane Mahler, an analyst for equity research firm Dresdner Kleinwort Wasserstein, said Nortel is likely to need about $2 billion in funding to make it through 2003. The analyst said the company probably won't attempt to raise that amount yet because the market simply wouldn't absorb that many shares.
Mahler also predicted more bad news for the company: The analyst doubts that the recently announced sale of Nortel's component business will receive attractive bids, and she said the company isn't likely to get any tax refunds this year in the United States since it won't be able to carry back any of its 2002 losses.
Mahler said for these reasons, the stock is likely to fall at least 12 percent below the $2 level and isn't likely to reach her target $3 level until a second round of financing is completed later this year.
Some analysts even questioned whether or not the company would be able to raise the funds. "Given the current market conditions, can Nortel complete both deals?" asked Merrill Lynch analyst Tom Astle. Probably, the analyst said, since mutual funds and other institutions that already own large chunks of the company will support Nortel, but at what price remains the question, he said.