Nortel CEO Mike Zafirovski leaves, board reduced to three directors

TORONTO — Insolvent technology giant Nortel Networks Corp. is bidding farewell to chief executive officer Mike Zafirovski in a sudden departure that comes as the company winds down operations and sells off prized assets.

TORONTO — Insolvent technology giant Nortel Networks Corp. is bidding farewell to chief executive officer Mike Zafirovski in a sudden departure that comes as the company winds down operations and sells off prized assets.

Mike Zafirovski, 55, a former senior executive of Motorola Corp. who was brought to Nortel in 2005 amid much fanfare and hopes of revitalizing the telecom technology company, is leaving immediately as president and CEO.

Nortel, a global telecom network vendor that was once Canada’s most valuable company, is in the midst of selling off its key assets after seeking bankruptcy protection in Canada and the United States in January.

It said Monday in a separate announcement that second-quarter revenue fell by 25 per cent from the same time last year and its loss more than doubled, to US$274-million.

Zafirovski said he has been talking with other executives for months about leaving the company during the current quarter, when he believed Nortel would be in a natural transition phase.

“In the end, maybe this was a simple decision to come to an elegant conclusion,” he said in an interview.

“The day we certified the financial results for the second quarter… we thought this would be a good time to announce that (my departure) but also show confidence in the people that will remain.”

Nortel’s board will be reduced to three members, down from nine. Among the departing directors is Harry Pearce, who has been Nortel’s chairman and who was instrumental in bringing in Zafirovski.

Originally, Zafirovski said in January that Nortel was aiming to keep its core operations and continue as a smaller technology vendor. However, it has since changed course and is in the process of selling its various business units and assets in a series of transactions.

“We’ve reached a logical departure point,” said Pearce in a release. “Mike made a commitment to see the process through the stabilization of the company, sale of its largest assets and the right plans and people to continue operating our business and serving customers. He has done so.”

Pearce said Zafirovski had made “great progress” on many fronts, including addressing significant accounting and legal issues and shifting Nortel’s focus from older “legacy” products to “growth” investments.

“It was unfortunate the transformation was derailed by a deteriorating economic climate and the company’s legacy cost structure,” Pearce said.

David Richardson will remain on Nortel’s board and also take the role as Nortel’s new chairman. He also serves as the director and chairman of Air Canada (TSX:AC.B), and its parent, ACE Aviation Holdings (TSX:ACE.B).

Nortel hasn’t named another chief executive officer. Instead it will ask for court-appointed monitor Ernst & Young, which has been working with Nortel since before sought court protection, to be given greater responsibility.

It also says a team of executives, including chief restructuring officer Pavi Binning and chief strategy officer George Riedel, will oversee operations and report to the board of directors and monitor.

Duncan Stewart, director of research and analysis at DSam Consulting and long-time watcher of Nortel, said that he doesn’t see Zafirovski’s departure as either premature or a surprise.

“Zafirovski is an operations guy… and that’s not what Nortel is focusing on right now,” he said.

“He’s not a guy who has an enormous depth of experience at the mergers and acquisitions base. That’s what George Riedel is for.”

Zafirovski said he has received offers from other companies to take a role as chief executive officer, though he didn’t name the interested parties. For now, he said he wants to spend time with his family.

“I will not do anything immediate,” he said.

The outgoing CEO also noted that he won’t be receiving any severance pay as part of his exit package, which makes him the only executive who hasn’t been paid retention fees.

“I’ve put everything into this for the last three and a half years. This has been an effort which I am very proud of, neither results which we wanted,” he said.

“But we came very close this time last year to having the foundation of a great turnaround.”

Also Monday, Nortel reported a US$274-million second quarter loss, worth 55 cents per share, partly on reorganization costs of $130 million. That compared to a loss of $113 million, or 23 cents per share, in the same period ended June 30 last year.

Revenues slid 25 per cent to $1.97 billion.

Nortel is also proposing to have a what it is calling a “principal officer” for its U.S. operations, which are under Chapter 11 bankruptcy protection.

“There is still much work to be done,” said David Richardson, Nortel’s new chairman.

Nortel has been operating under Chapter 11 bankruptcy protection in the United States and Canada’s Companies’ Creditors Arrangement Act since January.

Executives have been working to sell off pieces of the business as part of an auction process.

The first round involved the sale of Nortel’s wireless assets, which it has agreed to sell to Ericsson for $1.13 billion. The deal includes a commitment to employ 800 Canadians from Nortel.

“They’ve made those comments to me… but those commitments to us aren’t nearly as important as the commitments they’ve made publicly and to the Canadian government,” Zafirovski said.

“From all of the companies that I’ve seen to this point in time, in all the business which we looked at, they’ve been the company with the highest level of EQ (emotional quotient). It gives me confidence that they mean what they say.”

The deadline for bids on Nortel’s enterprise business is Sept. 4 while the auction will be held on Sept. 11.

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