I have stated numerous times that in our system of capitalism, killing a company is almost impossible to do. It just doesn't happen very often, especially with older companies with deep roots.
Years of losses, shrinking markets, and a failed business strategy matter little. If there is a will, there is a way. Until the credit crisis in November, there was always a way to raise needed capital to keep the dream alive.
A great example of this is Nortel Networks Corporation (NYSE: NT). The giant telecommunication networking firm was a darling for investors during the dot-com boom. In early 2000, the stock peaked at close to $1,000 per share on a split adjusted basis.
As the crash unfolded, NT collapsed. By the end of 2002, NT was a stock on life support and trading for pennies a share (pre split). At the time, the company was bleeding cash and facing an entirely different market for its products and services.
For the few years after, the company reorganized and changed its business plan to no avail. By late 2006, with the stock still languishing, NT completed a huge stock split so as to increase the nominal price of shares. That move resulted in a brief and slight rally in share price, but that, too, succumbed to the fact that this company would not be profitable in any substantial way. Somebody should have just pulled the plug.
The problem is that pulling the plug on a company with approximately $10 billion in annual revenue is incredibly difficult to do. There has to be a way to make money from those sales -- there just has to be a way.
Unfortunately, there is no way. Not when you have billions of dollars in debt that need to be paid. The capital structure is just all wrong. Making matters worse is the credit crisis and global recession. Now, eight years after the collapse of the dot-com boom, NT may finally meet its end. Except that end really won't be the end. The company will emerge with a new capital structure.
Losing out will be those that invested in stocks and bonds of the company. Shares of NT fell 75% on the news, reflecting the fact that equity holders are likely to be completely wiped out.
It was a nice run, but they just couldn't make it work. Some may say it should have happened long ago. That said, up until the credit crisis and global recession, it looked like NT might have a chance.
The lesson learned is that it is tough to kill a company even when it looks like death is near. For every NT there are several companies, including Corning Incorporated (NYSE: GLW), that survived and made money for equity investors.
Jamie Dlugosch is a contributor to InvestorPlace.com.
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