The Canadian government has signed off on the sale of key wireless Nortel Networks Corp. assets to Telefon AB LM Ericsson, ruling the Swedish company's $1.1-billion bid posed no national security concerns and did not require an Investment Canada Act review.
The announcement by Industry Minister Tony Clement at a downtown Toronto hotel yesterday afternoon clears the way for the deal, and comes over the objections of opposition parties and Research In Motion Ltd. The BlackBerry maker, based in Waterloo, Ont., had argued it was blocked from bidding.
RIM had called for the Ericsson deal to be reviewed, saying the technologies - the older Code Division Multiple Access (CDMA) and newer Long Term Evolution (LTE) - should stay in Canadian hands.
Mr. Clement rejected that, saying the CDMA technology and the non-exclusive LTE technology weren't critical to national security and that his staff could find no evidence that Canadian and U.S. courts blocked a bid by RIM.
"There are no grounds to believe this transaction could be injurious to Canada's national security," Mr. Clement said yesterday. "[Ericsson] has the resources and customer base necessary to bring Canadian innovation to market ... This deal is very beneficial to Canada."
Ottawa could have objected to the sale under two grounds - national security or in an Investment Canada Act review, which can only be conducted if the book value of the sold assets exceeded $312-million.
Mr. Clement said that although the winning bid was $1.13-billion (U.S.), the "book value" of the wireless technologies was much less - $182.5-million (Canadian). Therefore, it was not eligible for review, he said.
"I am satisfied that the assets being sold fall below that threshold," he said.
A joint review of the sale by Canadian and U.S. courts ended last month. As far as the Canadian government is concerned, it's a done deal, Mr. Clement said.
Critics had argued that the "enterprise value" of the key assets was much higher and should be considered instead of the "book value." Canada is in the process of introducing new regulations that would consider the enterprise value instead, which includes the value of intellectual property and employees.
Even if those new regulations had been put in place, however, they wouldn't have applied to a partial sale of assets, such as the bidding process won by Ericsson. "Enterprise value" would only be considered in the sale of an entire company, Mr. Clement said.
The minister struck an international tone, saying Canada shouldn't resort to protectionism by blocking a sale to a foreign company. An Ericsson subsidiary has operated in Canada for over 50 years and employs 1,900 Canadians.
Nortel still holds the patents for its LTE technology, having sold only a non-exclusive licensing agreement to Ericsson.
Ericsson will keep 800 Nortel employees in Canada at roughly the same salaries once the deal is completed, Mr. Clement said. The "vast majority" of those employees have agreed to stay on, the minister said.
"My job is to protect Canadian jobs and intellectual property, and I believe this sale achieves those two objectives," he said.
Mr. Clement said no "qualified bidder" was blocked in the sale, and said any company, specifically citing RIM, would be free to bid on other Nortel assets that will be sold as the company works its way through bankruptcy proceedings.
Liberal Industry critic Marc Garneau said the $1.13-billion bid was "a clear indication of the value" of the assets, and argued that the sale should have been subject to a review under the Investment Canada Act.
"It's very, very regrettable from our point of view that Mr. Clement hid behind the issue of 'book value,' when in fact we all know these are extremely valuable assets in terms of intellectual property," Mr. Garneau said in an interview.
"It's clearly indicative that this government doesn't understand that intellectual property is clearly the Holy Grail in a knowledge-based economy. Given the clear value, it should have been subjected to that [Investment Canada review]."
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