Seeking to quell criticism of its controversial deal to buy wireless assets from Nortel Networks Corp., Sweden's Telefon AB LM Ericsson is disputing the claim that Canadian taxpayers helped fund the development of the Nortel assets.
The Swedish telecom equipment maker has sharpened its message to federal officials and the Canadian public as it seeks to win Ottawa's blessing for the $1.1-billion (U.S.) deal. In addition to pushing back against the argument that the assets were taxpayer-financed, Ericsson is also rebutting the claim that the purchase could threaten national security.
Ericsson executives are touting the value their company has brought to the Canadian economy since opening doors here more than 50 years ago.
They are also trying to clarify the nature of the complicated Nortel deal, and they're talking up the benefits the sale will have domestically, including the preservation of hundreds of high-value jobs.
Research In Motion Ltd. has been the most vocal Canadian opponent of the deal, calling for Ottawa to review it to protect "vital Canadian interests."
"We have been surprised that the position Ericsson has had in Canada this long, and some of these other messages that we have tried to clarify - about what the deal is really composed of and what the net benefits are of the transaction - have been sort of lost in the mix," Mark Henderson, president and CEO of Ericsson Canada, said in an interview.
"I don't want to comment on RIM and what they may perceive this to be. We're just trying to clarify what it is."
Ericsson said it spent $126-million on research and development in Canada in 2008, about 5 per cent of its global total. The deal with Nortel would increase R&D expenditures here by 40 to 50 per cent, Mr. Henderson said.
Mike Lazaridis, president and co-CEO of RIM, told a parliamentary committee this month that his company had "handshake deals" with Nortel to buy some of the assets in question. He urged lawmakers to intervene and broker the reopening of the court-approved sale of wireless assets, which went to Ericsson in a bidding process.
"The government of Canada has the legal ability to review the proposed Nortel sale and a recent poll shows that the vast majority of Canadians want the government to conduct such a review," RIM said in a statement Friday.
Richard Corley, a lawyer with Blake, Cassels & Graydon LLP and counsel to Ericsson, said because Nortel hasn't reported a profit in almost 10 years, it hasn't been able to use tax credits from R&D spending on wireless technology.
Most of the development work done on the assets being purchased was done in the United States, and less than 20 per cent of the book value of assets are located in Canada, Mr. Corley added.
A senior government official told The Globe and Mail last week that Ottawa is evaluating the assets of the transaction at book value for the purposes of deciding whether the deal must be reviewed under the Investment Canada Act. Nortel and Ericsson have set the book value of their deal at $149-million, far short of the $312-million (Canadian) threshold that triggers a review.
Book value reflects the balance sheet value of a deal's assets not including such intangible assets as intellectual property and employee talent.
"High technology businesses are quite often asset-light," Mr. Corley said of the wide gap between what Ericsson is valuing the assets at and what it has agreed to pay for them.
"You are not buying the values of the chairs and the bits and pieces. What you're buying is the earnings capacity."
On national security, Ericsson says that as an equipment supplier it does not manage or control sensitive information.
The company also stressed that it has built one of the largest wireless network in the country and that it has been a supplier to the Department of National Defence and qualified for secret security clearance from the government.
RIM executives disagree.
"Nortel's LTE [long-term evolution wireless] is critical infrastructure technology, both from a commercial and security perspective and should therefore be owned and continued to be developed by Canadians," the company said in a submission to the parliamentary committee.
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