As Nortel turns the corner, can it stay independent?


Very few investors remember that Nortel Networks Corp. (NYSE:NT) traded for over $800 (split adjusted) in 2000. The shares are now at $26, a modest recovery from recent lows.

The press is beginning to pin the "recovery story" label on Nortel. Barron's ran a cover story of the company's emerging potential. Forbes recently wrote "Has Nortel Turned Around?" In the Forbes story, Nortel's CEO, a former Motorola Inc. (NYSE:MOT) executive, said that the company is looking for acquisitions. It is an ironic comment, since Nortel should be on shopping lists of several other companies

Nortel's sales are over $10 billion. That makes it more than half the size of the recently merged Alcatel-Lucent (NYSE:ALU). Nortel's market cap to sales ratio is low at about one times, lower than Alcatel-Lucent and Motorola. And, if the company is turning around, its stock has not caught up. It trades well below its 52-week high of $34.30.

There are several companies that might find Nortel an attractive acquisition. The list would be lead by Motorola, Cisco Systems Inc. (NASDAQ:CSCO), and Alcatel-Lucent.

Douglas A. McIntyre is a partner at 24/7 Wall St.

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