When it comes to special summer emergency committees, liveblogger beggars can’t be choosers, right? The witnesses for today’s meeting hasn’t yet been posted on the parliamentary website, as the committee must first hold a brief, pro forma — and in camera — meeting to vote on the emergency motion, but Canadian Press has the unofficial list of who’s likely to be at the table: “officials from Industry Canada, Ericsson and Mike Lazaridis, president and co-chief executive of BlackBerry maker Research in Motion.” Check back at 9am for full coverage!
(And yes, ITQ will do her best to keep her BlackBerry fangirl tendencies under control for the duration of today’s meeting.)
Greetings, fellow committee junkies! Is everyone excited? I hope so, because ITQ can report that the emergency motion passed without a hitch, and the first panel of witnesses — the Nortel Contingent — is already at the table, waiting for the gavel to go down and the meeting to get underway: senior vice-president George Riedel, carrier networks president Richard Lowe and legal counsel Derrick Ray will be fielding questions for the next hour and fifteen minutes.
As for the MP roster, on the opposition side, we have Liberal industry critic Marc Garneau, flanked by Anthony Rota and Martha Hall Findlay. For the Bloc Quebecois, it’s Mario Laframboise and Robert Boucher — and Brian Masse for the NDP.
On the other side of the table, representing for Team Government, we have: Mike Lake, Dave Van Kesteren, whose name I unfailingly misspell, so apologies in advance, Royal Galipeau, Daryl Kramp and Peter Braid, with Michael Chong wielding the gavel.
ITQ can also provide an exclusive sneak preview of the official Nortel message track for today’s meeting, courtesy of the press release currently being handed out to reporters that offers “key points” from their testimony: “This” — the sale of the company’s CDMA business/LTE assets “is a good deal for Canada”. So there you have it.
Anyway, while I was typing all that out, the meeting sneakily got underway, so ITQ will now get down to some serious liveblogging business. Whee!
First up is Riedel; after a bit of housekeeping business related to a document that Nortel wants to table as evidence, despite the fact that it hasn’t yet been translated, he launches into a ten minute opening statement, which touches on what he sees as the key issues — the bidding process has received the blessing — or, at least, the non-cursing — of the courts, and all interested parties were allowed to take part.
He also points out that for the last ten years, Nortel has not, contrary to popular myth, been able to rely on R&D tax credits, which means that these technologies weren’t developed using government grants or contributions at all.
As for the question of national security, as far as Nortel concerned, there is no “pressing concerns”, as these are “open international standards-based technologies”, and at the moment, there are no plans to sell any other Nortel patents.
That’s it for the opening statement — now, onto questions, starting with Marc Garneau, who begins with the obligatory shoutout to his leader — who, he reminds us, sent a letter to the PM “very strongly urging him” to “look closely” at the file. Like, blue-ribbon panel close? We can only imagine how *that* would go. Anyway, he outlines his party’s concerns — pensions, security, selling off priceless Canadian assets — and asks whether Nortel officials met with federal officials before proceeding with the sale. Yes, they did, Riedel says — beginning last fall, when they attempted to get the government to provide support, which it eventually decided against, as they didn’t consider the plan to be “viable” or the industry to be in crisis.
“They didn’t consider the industry to be in the same situation as, say, General Motors?” Garneau asks. That seems to be the gist, yes.
Garneau moves onto the question of R&D tax credits, and the “big picture” of how much federal support has been provided to Nortel — “really, going back for a few decades”. Have any *other* forms of financing been made available? How much investment, in total, has been made in Nortel by federal governments past and present.
According to Riedel, EDC provided a bonding facility — to a maximum of $750 million — in 2003; the agency has also provided $40 million to help Nortel meet the January deadline. As far as pre-2001 tax crediting, he just doesn’t know.
Garneau looks — thoughtful, but he’s out of time for this round, and hands the floor over to Robert Bouchard, who explains that the Bloc is “open” to a study of the sale, in order to ensure that it’s a good deal for Quebec, and that La Belle will get its ‘fair share’ of projects. Oh, Bloc Quebecois. Don’t ever change. At the moment, the party is tentatively in favour of the deal, but wants to know the details.
Bouchard gripes for a bit over the minister’s handling of the file so far, and apparent unwillingness to impose any conditions — ie, Quebec and its fair-share getting — but finally gets around to his question: When, exactly, did the negotiations begin?
Why are they so fixated on the timeline, I wonder? Is it that crucial to understanding the deal?
Riedel gives a bit more background on the “stalking horse” — the Nokia/Siemens bid — and notes that the negotiations started last year, albeit informally, got more serious in May, and ended with the auction, which took place “very recently”. Bouchard wonders what documents, exactly, Nortel “produced” for Industry Canada on this topic; the answer appears to be none, at least as far as Riedel is aware.
Legal Counsel Tay — who has a delightful Scottish lilt — explains the legal backery forthery, and reminds Bouchard that the deal didn’t meet the threshold for automatic review under the Investment Canada Act.
With that, the Conservatives get their first crack at the witnesses, and Mike Lake asks Riedel to explain how the company plans to “maximize value”, particularly given the concerns of pensioners, employees and other interested parties. In response, Riedel reminds Lake that there is, in fact, a court process, and assures him that his goal is to work hard for the benefit of all, including former and current workers.
Moving on to a related issue, Lake wants to know how, exactly, this deal will preserve Canadian jobs, and this prompts Richard Lowe — carrier networks — to explain how the deal will protect hundreds of jobs in the Ottawa area.
This, as it turns out, provides Lake with an ideal segue to hand the floor over to *his* colleague, Royal Galipeau, who represents Ottawa-Orleans, where — as he reminds the witnesses — many of those workers live. He calls the current situation “unfortunate”, and asks how this sale “will be best” for the current employees.
Riedel begins by pointing to the customers — Asian, European, North American — who have, time and again, expressed concern over the long-term viability of the company, and have exhorted Nortel to “get those assets into safe hands”. This, he suggests, means that workers should be reassured by the Ericsson deal: these, I gather, are the safe hands that the world was waiting to see in control of the assets before buying into Nortel’s CDMA magic.
After another brief exchange between Riedel and Galipeau on current workers, during which it becomes clear that Riedel is distinctly more comfortable discussing the economic benefits than the human impact, it’s back to the other side of the table, and Brian Masse, the NDP’s industry critic and working man’s man, who grills Riedel — and Tay — over the pension plan, particularly a report that suggests US pensioners will receive considerably more of their “deferred wages” — which is how he views pensions — than their Canadian counterparts.
Riedel doesn’t seem to be aware of the specific figures on which Masse’s question is founded, and the two then have a brief dispute -civil, but tense – over book value versus — something else; I’m sorry, I’m just not a business reporter — before Masse switches tack again, and asks how many patents are up for sale as part of *this* deal — 190 “patent families”, according to Riedel, out of over 5,000.
So far, the only party that seems even the least bit supportive of the Ericsson deal is the Bloc Quebecois. I have no idea what that signifies, but it’s interesting.
Back to the Liberals, and Anthony Rota, who wonders what will become of Nortel if the deal goes forward. Will it disappear? Become a shell company? Continue, albeit in a different form? Riedel confirms that the three “principal businesses” will be sold — likely by the end of the next quarter. As for the patents, that will depend on the asset sales, and “maximizing value” for the remaining patents. The courts, he stresses, will have to approve any subsequent deals as well. “So we don’t know where those patents are going to go?” Rota asks. Yup, that’s about right.
Dave Van Kesteren asks for a more thorough explanation of what, exactly, CDMA and LTE are. CDMA is “the technology you use on your cell phone”, Lowe tells him, and the business is — everything surrounding that technology. As for LTE, that’s the next generation of the same technology; eventually, it will provide more bandwidth for your phone, and – if you use one, which ITQ wagers every single person in this room is doing right this second, your BlackBerry.
Daryl Kramp takes over for DVK halfway through his allotted ten minutes, and loses no time before blaming the provincial government for falling down on the job as far as protecting pensioners. He then asks whethe RIM was one of the original “stalking horse” bidders — no, apparently not — and promptly runs out of time.
Back to the Bloc Quebecois, and Mario LaFramboise, who wants to know whether they’ve had any discussions with the government on the applicability of the Investment Act, and Riedel — who seems to be choosing his words carefully — maintains that, as far as the book value, as opposed to the “real value”, of the transaction, it falls under the threshold to automatically trigger a review.
In response to Laframboise’s fretting over the jobs that could be lost from Montreal, Riedel suggests that Ericsson will be in a better position to answer those questions, but says that as far as he knows, there are no plans to “consolidate” current Quebec operations with those in Ottawa.
Peter Braid – who, as he reminds us all, represents Kitchener-Waterloo, a region with particular interest in high tech wizardry — has a few questions about exactly *what* Ericsson will get out of this deal, as far as LTE. Riedel and Tay give a rundown of the deal, which includes the licence to use LTE technology, but no actual LTE patents.
A bonus round for Brian Masse, who wants to know more about the public safety-oriented uses for the technology, and tries to get the witnesses to agree that they made an “eleventh hour” investment in LTE. He wonders, not unreasonably, why Ericsson would pay over a billion dollars for assets with an ostensible book value of just $40 million, and Lowe once again laments the fact that, although it’s always pleasant to get kudos for one’s developments within the “community” — I assume he means techie types — they still weren’t able to find anyone willing to actually *buy* it.
Mike Lake, meanwhile, is intrigued by the difference between selling and licencing patents, and Lowe explains that this is standard industry practice; they all licence patents from each other.
Did I mention that there’s a small-ish child in the audience, listlessly clutching an umbrella and occasionally eyeing the half-full muffin buffet at the back of the room? Because there is, and ITQ shares his sentiments entirely.
One more round before the mid-morning break, which goes to Siobhan Coady, who reminds us that really, this is all about people — past, current and future workers, and all Canadians. She asks him a few more questions on Nortel’s negotiations with the government — I think I can see where the Liberals, at leat, are going, as far as the eventual post mortem press release — and eventually, the chair steps in. We’re adjourned for fifteen minutes, and then – it’s RIMtime! See you then!
Update from the front lawn, where ITQ is currently trying to suck up sufficient Vitamin D to sustain her through the next two hours of energy-sapping artificial lighting and probably-toxic circulated air: there appears to be a small but grimly determined band of Nortel pensioners picketing on the walkway, which is almost certainly proving bemusing to the hundred-odd tourists watching the Changing of the Guard. There are also two jeeps, and a dozen or so camo-clad soldier-types, who are alternately saluting and ignoring the ritual going on before them.
Okay, it’s official: Mike Lazaridis is the closest thing to a celebrity this committee has experienced in years. During the break, an impromptu receiving line sprung up in front of the table, and the number of reporters in the audience has grown by at least a third, including Colleague Wells.
Another panel, another opening statement, but since this one is being delivered by Lazaridis, everyone looks just a little bit more attentive as he starts to speak, addressing the chair, “honourable members”, the deputy minister, colleagues and “friends,” although given the extreme attachment that most of us have to our BlackBerries, “willing slaves and Stockholm syndrome-suffering hostages” would work just as well.
His speech? Oh, pretty much what you’d expect, really — he was “saddened” by the demise of Nortel, and was in discussions to obtain several of its LTE technologies *before* they filed for bankruptcy protection earlier this year. RIM wants to “continue the legacy” of Nortel’s research, and ensure that the future of the technology remains in Canada. Yet Nortel, he reveals, “failed to bargain in good faith”, and “failed to honour promises made to RIM on many occasions.”
Sharper than a serpent’s tooth, indeed.
After a brief but pointed Avro Arrow anecdote — he has a model of the ill-fated aircraft on his desk — he implores all and sundry not to make the same mistake again, and pushes for a “win win” solution that will benefit all Canadians. How can anyone say no to that?
Well, great — just as ITQ was attempting to file the first Lazaridis-centric update, her berry crashed, claiming that the page — the WP admin page, that is — was too heavy for this particular device to handle. Which means that for the next little while, I’ll be relying on a proxy-poster, so don’t be surprised if the frequency dwindles.
Meanwhile, Lazaridis is fielding fairly open-ended questions from Coady, and doing a fine job of it, from what ITQ can tell, although he has a tendency to break out the berrypie-in-sky patter whenever he goes on for more than a minute or two.
Robert Bouchard, meanwhile, takes a more technical approach in *his* opening line of questioning, which is mostly related to the number of RIM employees in Quebec — which is none, Lazaridis acknowledges — as well as its theoretical commitment to protect Nortel’s jobs. In Quebec, in case there was any doubt as to his focus. Lazaridis reminds him that without the people — those workers; 2500 of which Ericsson is willing to commit — the technology is useless.
RIM has over 12,000 employees today, he reminds the committee — and the challenge has been finding *enough* “high quality talent”, as Nortel’s employee pool would have offered. At the same time, since they were excluded from the bidding process, they weren’t given the opportunity to understand the transaction, and the details of what was and wasn’t available. “The non-disclosure took away all value for us to enter the bidding process,” he notes.
Next up: Peter Braid — who, to his credit, manages to resist reminding us once again that he represents Kitchener Waterloo, AKA RIM Country — who wants to know exactly when the negotiations with Nortel began; it was “months” before the company filed for bankruptcy, according to Lazaridis, and it wasn’t until much later — after RIM thought they “had a deal” — that they found out Nortel was entertaining offers from other bidders, and tweaking the deal to the point that it was no longer of interest to RIM. As for the NDA, once RIM realized that the stalking horse bid — which sounds so sinister, really, and like something to avoid at all costs, although apparently from Nortel’s perspective, it was exactly the opposite — was getting more consideration, they decided to take an alternate approach.
“If you found a house that met all your needs, and started to work on a purchase agreement, and in the final hour, found out the owner had given a lifetime lease to another party, and a sublet lease … What benefit would there be to purchasing that house?” And thank you, Mike Lazaridis, for *finally* putting this in terms that even ITQ, who has been steadfastly ignoring this story for weeks, can understand.
And now, Brian Masse, who wonders who, exactly, set out the now infamous non-disclosure agreement; it was Nortel’s US counsel, apparently. He also asks about the disparity between the real and book value, as well as the risk of handing over homegrown Canadian technology to foreign-owned corporations.
Lazaridis notes that, in many cases, technology remains in its country of origin, since that’s where the headquarters — and, as a result, the bulk of employees — are located. How would a change of ownership affect the local economy? He doesn’t know, but seems to think it’s worth finding out.
Masse also wonders about Nortel’s claim not to have been able to use any R&D tax credits, and Lazaridis notes that “a famous HP researcher” once pointed out that for every year you invest in an emerging technology, the amount needed to compete would increase by an order of magnitude. It would be “massive”, he stresses.
Having exhausted his time, Masse reluctantly cedes the floor to Garneau, who gives notice that he will be asking “candid” questions of the witness, beginning with a clarification on what RIM had initially offered to buy, which was the CDMA business and the LTE patents, according to Lazaridis – but leaving Nortel with the ultimate power to further licence the technology was a dealbreaker.
“At this point, based on the information we have, those assets” — including the patents — “have very little value,” Lazaridis tells the committee.
Lazaridis stresses that it is of vital importance to be at the table when international standards are being worked out, and notes that this — LTE — is a wireless technology, which means there are security and access concerns for companies, private citizens, governments and law enforcement.
Nortel knew what RIM was interested in, Lazaridis preposition drops — yet due to the last minute revelations on licencing, RIM was left with very little time to react when it came time to bid. Mike Lake wonders if the witness is accusing Nortel of deliberately “jigging” the process, and Lazaridis isn’t willing to go quite that far, although he comes close; the two companies had been so close to a deal that emails were being exchanged on the text of a possible press release, he recalls.
But would the new process have benefited Nortel stakeholders, Lake wonders, to which Lazaridis muses that “wiping out” the company’s intellectual property resources hardly seems like the best way to protect the value.
Lake just can’t quite get his head around *why* Nortel would switch to what Lazaridis is depicting as a lose-lose process, and Lazaridis assures him that news of the changed deal came as an “unpleasant surprise”.
Like pretty much every MP so far, Mario Laframboise starts out by assuring Lazaridis that he, too, very much appreciates the importance of RIM, which he describes as “ensconced” in Canada, and makes some sort of hockey reference that produces mild, polite laughter from MPs but is completely lost on ITQ — teams? franchises? If it’s not about the hockey book, she’s pretty much guaranteed not to get the joke.
He asks Lazaridis to explain *his* proposed solution, which he does — it involves yet more discussions, involving the minister and all interested parties. It might not work, he admits — but it’s worth a shot.
Over to Daryl Kramp, who wonders if RIM discussed the changes to the bidding process with the court, and Lazaridis reminds him that this was, principally, a US-based proceeding, and once again points to the NDA, which would have forbade bidders from making an offer on any other asset — which would only have affected RIM, and not the stalking horse bidders. “We needed rights to *two* of those assets,” he stresses — and because of the way the deal was structured, this would have rendered them unable to bid on them.
Kramp asks if he has any actual *proof* that the loss of this technology presents a genuine risk to national security, and Lazaridis tells him that what’s important is to practice due diligence — it’s “standard practice” in most countries, particularly when it involves R&D that will fall under international standards. “When we bought Certicom,” he recalls — a Canadian company that was less than a hundred miles away — even *that* was subject to review under American law — so why isn’t *this* deal of similar concern to *us*?
One more question from Kramp: if the situation was reversed, and RIM was bidding on Ericsson, what would Sweden’s reaction be? “The scrutiny,” Lazaridis suggests, “would be intense.”
Back to Brian Masse, who wants to know more about “the human cost” of losing technology like this, a hankering that Lazaridis is only too happy to indulge: the impact on local economies is substantial, and then there are other companies that have built on the BlackBerry technology, and have a vested interest in it surviving and thriving. Masse has more questions about what will happen as LTE starts to “break through” to the consumer market, as well as larger clients, and Lazaridis points to the 3G networks, already buckling under “incredible demand”. They need “fourth generation technology,” he notes — that’s why they wanted Nortel’s LTE.
Mike Lake is curious about the technical details of the potential security risks, and Lazaridis does his best to lay out the various concerns, and suggests that, at the moment, it’s the device — the BlackBerry, that is — that provides security, not the networks. There’s a bit more back and forth about the stalking horse bid – which I’ve begun calling the *rocking* horse bid in my head, since that sounds more collegial – as Lake tries to figure out whether RIM was actually proscribed from taking part in the bidding process, or just unwilling to do so.
Anthony Rota wants to know more about discussions between RIM and the minister’s office, and notes that, while he doesn’t want to make this sound like a *conspiracy*, the way RIM describes the eleventh hour change to the process seems to come awfully close to qualifying as exactly that, given that licencing was one of the escape hatches from the original deal. He asks Lazaridis, point blank, what other assets RIM would have been interested in buying up, and he notes that it’s no secret that they wanted the LTE patents — but those hadn’t even been on the table during the pre-auction negotiations.
Chairman Chong closes out the morning session by noting that the court gave its approval to the auction process, since it would ensure fair value for Nortel shareholders, and wonders if there isn’t a bit of a double standard within the RIM philosophy on fair bidding arrangements, since Lazaridis’ co-founder, Jim Baillisie, is arguing in one court that they should be open to all, and virtually without conditions, while Lazaridis appears to be making the exact opposite point with *his* objection to the Nortel auction. With that, he adjourns for a half hour, leaving several RIM executives sitting behind ITQ to wonder why their boss wasn’t even allowed to respond to the comparison. Which doesn’t seem fair, really, but – as ITQ points out to then – he can always scrum outside.
Anyway, that’s it for the morning session — I’ll see you back here in half an hour for the afternoon show.
Well, ITQ can report that, once again, she seems to have temporarily thwarted the still-unidentified technical glitchiness that randomly infects her berry, thereby rendering her unable to liveblog, but who knows how long that will last?
In any case, we’re back in session after a very abbreviated lunch break; Chairman Chong has gaveled up and Mark Henderson, president and CEO of Ericsson Canada, is now explaining how the Nortel acquisition is — are you noticing a trend? — a good deal for Canada.
He starts out with a brief history of Ericsson in Canada, which goes back to 1953, and has made it a leader in telecommunications. “Our commitment to Canada is strong and longlasting,” he avers. He then shifts to more recent history — the auction, and the eventual acquisition of Nortel’s North American CDMA business, as well as “certain LTE assets”, reiterates his company’s pledge to employ “approximately 800 Canadian Nortel employees”, and maintans that Ericsson is not *purchasing* the patents, but licencing them, which means they will remain Nortel’s property, and can be licenced to others. After a little more brochure-speak, he wraps up by noting that this deal with help attract more foreign investment, which wil increase Canadian productivity, and once again describes this as “a good deal” — for Nortel, for Ericsson and for Canada.
And — questions, starting with Garneau, who notes that CDMA technology is, after all, on its way out, albeit gradually, and wonders what this means as far Ericsson’s future plans, and the workers who service that technology. Henderson notes that the employees that Henderson is taking on are a key asset, which means, presumably, that the company has no intention of throwing it away. Garneau, however, wonders at the licencing aspect of the deal — what’s the rationale behind entering into such an arrangement with a company that may no longer exist — in its current form, at least — in the near future. In response, Henderson attempts to analogize, but only succeeds in confusing the issue — his example involves buying apples, and “building pies”, but not being able to bid on the farm itself, or even purchase pears.
Oh boy, more questions about what the deal means to Quebec! Robert Bouchard wonders whether this deal could delay expansion of Ericsson’s Montreal operations, which prompts Henderson to remind him that the company has, to put it mildly, a long and storied history; they were in Russia during the reign of the Czar (insert Ignatieff joke here) and in China since the turn of the century, and never, ever, have they simply abandoned a market.
Bouchard, however, notes that there is almost always a streamlining process when a company changes hands; what kind of consolidation will *this* deal involve? Henderson once again stresses that this isn’t about layoffs. “We’re paying a lot for the business, and it *is* a business,” he notes, “But we’ll maintain those jobs.”
Does this mean *more* job, Bouchard asks hopefully — and if so, where will they be? (Note to Henderson: The correct answer is “Quebec”. HTH.)
Henderson lists the current jobs, by region, but Bouchard wants to know about *new* positions, which eventually leads ITQ to suspect that they’re actually talking at cross purposes.
Back to Team Government, and Mike Lake, who *also* wants to know more about the reference to the possibility that more jobs may “ultimately” be created. Sounding slightly uncomfortable, Henderson reminds him that Ericsson offices from across the world compete for new projects, which means that he can’t really predict which Canadian facility, if any, would be the beneficiary of any theoretical new jobs.
Lake also wants to know about commercializing R&D, which, he points out, has been a challenge for Canadian companies in the past, as well as Ericsson’s exclusive contract with Rogers. Henderson points to various partnerships with post-secondary educations and other research resources, and discusses the proud Ericsson-Rogers history, from the days of the Mobotext network, which — by coincidence — was the one on which the very first RIM was built.
Finally, Brian Masse gets to put the question that he’s asked every witness so far to the only ones who will ultimately be able to answer it: Why did Ericsson pay so much more than the booking price? Henderson reminds him that the auction was very competitive — the price was at $650 million when Ericsson entered the fray — and tells him that the $1.2 billion price tag reflects what they were willing to pay.
Masse, who doesn’t look particularly satisfied with that answer, moves onto the non-exclusive licences, and one of Henderson’s co-witnesses points out that, while it is perpetual, RIM, or any other company, could *also* licence the technology for its own use — from Nortel, not from Ericsson. Masse counters that any enhancement to the technology that Ericsson makes — which will almost certainly happen, since they’re also buying the workers responsible for developing the original LTE technologies — will be Ericsson patents, and not the property of Nortel. Henderson doesn’t disagree, but notes that this is how such licences usually work.
Siobhan Coady wonders whether Ericsson was concerned by the non-disclosure agreement — no, doesn’t sound like it — and asks about the company’s plans for *future* innovation in Canada. Again, Henderson seems reluctant to provide specifics, but points to the company’s record in doing just that.
Back to the Conservative side of the table – not, I should note, that there has been even the smattering of partisan rancour coming from anyone so far, with the exception of one anti-McGuinty aside from Daryl Kramp – and DVK asks a fairly general question about the industry’s financial future, given the recession and the fragility of the recovery; Henderson points out that, although every sector has been affected by the slowdown, it’s remarkable how many other things people are willing to give up before sacrificing cell phone service. So, so true.
Finally, he wonders, what impact would it have on Canada’s reputation as an investor-friendly nation if the government stepped in to block the sale? Henderson notes that it probably wouldn’t be good, and adds that Ericsson, in particular, would be ‘very disappointed’ to lose out on this technology.
Mario Laframboise attempts to get Ericsson’s side of the story on the auction itself — and, more specifically, RIM’s contention that it was somehow unfair, and Henderson points out that the whole thing took place under court supervision, and that RIM could have objected at any time — or entered the process — yet they didn’t do so, but simply popped up here at committee to condemn the whole system.
You know, it would have been interesting to have RIM and Ericsson on the *same* panel. Well, dramatic, anyway.
Royal Galipeau asks a rambling, but wel-intentioned question about those 800 workers — 400 of whom live in and around his riding — are, in effect, changing hands from Nortel to Ericsson, and Henderson does his best to make it sound as non-uprooty as possible. Most of these employees are there to support the CDMA infrastructure, he agrees — but who better to sell the *new* technology to potential customers than these veterans and experts?
What it comes down to, as far as Masse can see it, is that Nortel is reducing the value and future competitiveness of its patents — and technology — by allowing this non-exclusive licencing deal. Not surprisingly, neither Henderson nor Ericsson legal counsel Richard Corley see it as quite that dire a situation for Nortel, since other companies can licence the patent as well. Ah, but not the workers, Masse reminds him — which makes it considerably less desireable.
Peter Braid wonders whether these witnesses have any particular insight into why RIM wouldn’t have entered into the bidding process, and Corley again reminds the committee that at no point did RIM go to court to object to the terms. Would Ericsson would be willing to take part in four-way discussions, as proposed earlier today by Mike Lazaridis — a “very respected” businessperson in Canada? Henderson won’t come right out and say whether he would — or wouldn’t — but stresses that, as far as Ericsson is concerned, there was nothing unfair or untoward about the now concluded auction process.
Finally, Garneau asks Ericsson whether the prohibition on bidding on other assets was part of the non-disclosure agreement that *they* signed, and Corley says that it wasn’t, which — wait, what? ITQ is confused — wouldn’t the terms of bidding be the same for all parties? Otherwise, it wouldn’t be, well, fair. Garneau seems similarly puzzled by the response, and I suspect this may come up later, or at a subsequent meeting.
Whoops — looks like my last update didn’t make it through — which I’m going to tentatively blame on human error, and not the fine, made in Canada RIM technology that makes this liveblog possible — but luckily, you didn’t miss much, as we were just about to break for the last fifteen minute break of the day.
We’re now waiting for the final panel, which is made up of various Industry Canada heavyweights, including the deputy minister – Richard Dicerni – as well as Helen MacDonald and Marie Josee MacDonald, whose positions, alas, will remain a mystery for the time being, as some unidentified self-appointment tidier seems to have wandered off with the stack of papers that ITQ had left for safekeeping on the media table, which included, among other things, the witness list. She also lost her seat to a very officious departmental staffer, who seems to think that the “Reserved for the Media” sign on said table is a mere suggestion, and flatly refused to cede it back to its original owner upon her return. She seems to be the resident expert on the Investment Canada Act, and looks exceptionally frazzled.
After a very short statement from Dicerni, the chair delivers a somewhat pointed reminder about what these officials can and can’t answer, and then hands the floor over to Garneau, who – like ITQ – first wants to put on the record the “seeming discrepency” between the interpretations of the NDA — and specifically, the ban on bidding on additional assets. The chair agrees that this is worth looking into, and promises to put the research staff to work on finding an answer.
With that out of the way, Garneau asks Dicerni for more details about the department’s involvement in pre-auction discussions with Nortel, including those in which the company pitched a plan that the government ultimately found to be non-viable. What, he asks, does Dicerni have to say about those comments?
Dicerni notes that those were Nortel’s comments, and not those of himself or his staff — he doesn’t want to get into a whole he said/no, he didn’t say debate, but he points out that there were “other elements” to the plan – mostly related to markets – in which Nortel wasn’t getting what they thought they would. At one point, he recalls, the company was looking at a strategic merger, and then later, they were planning to either sell or buy another company. It all came down to sustainability, and at that time, the markets were “extremely turbulent”. The upshot was that the plan evolved throughout the discussions; there wasn’t just one offer tabled in October that remained the same from month to month.
Garneau once again tries to get Dicerni to confirm that it was the government that eventually gave the thumbs down to Nortel’s survival plan; in response, the deputy minister carefully refers to the minister’s statement on the subject — in which he confirmed that, in his view, the company was not sustainable.
Robert Bouchard wants to know why the government didn’t submit the proposed deal to a review under the ICA, and Dicerni notes that, at the end of the day, “the decision is made by the minister.”
Does the minister have any discretionary power if the ICA *does* apply? Not really, as per MacDonald — it’s all statutory, and Dicerni adds that the investor may make certain commitments, which the minister will review to determine if there is a “net benefit” for the country. Those commitments would, however, remain confidential, as there are commercial interests to consider. “These are business matters,” he reminds Bouchard.
After *another* reminder from the chair on how these particular witnesses can’t answer any questions on this specific case, it’s Mike Lake’s turn at the microphone, and he asks whether the government has any reason to believe that Nortel broke the law in its dealings with RIM — the “handshake agreements” and alleged restriction on additional bids — but, not surprisingly, gets a very general answer from Dicerni, who notes that the government has no opinion on that question, but adds that RIM did have several opportunities to “challenge the process”, but “chose not to” for “business reasons”.
As cagey as Dicerni was when asked about the applicability of the ICA, he is positively sphinxian when it comes to the national security aspect; he spends several minutes explaining how very much not under his jurisdiction that whole issue is — it is fully within the mandate of the Department of Public Safety.
Over to Masse, who laments — not for the first time, ITQ suspects — the lack of parliamentary scrutiny and review of the ICA, and MacDonald reminds him that there will be opportunities for comment and consultation in future. Masse points out that the criteria changed from book value to enterprise value, and again points to gap between the $140 million book value and the $1.1 billion that Ericsson ultimately paid for the assets. Although MacDonald notes that the regulations are still in the consultation process, she seems to take issue with his suggestion that companies can simply pull the book value number “out of the air”.
With one more question to go, Masse wants to know how long the minister has to decide whether to submit the deal to a review, and Dicerni tells him that the timeframe under the Act would only kick in once that decision is made. He does reveal that the government is in discussions with Ericsson.
Michael Chong takes off his chair hat for a moment to ask for still more information about the progress of consultations on the regulations, which he gets but which ITQ will spare you. He’s followed by Anthony Rota, who wonders just what kinds of transactions are covered by the ICA — does it apply to companies? Subsidiaries? Or assets? It sounds as though it’s a combination of all three; the asset value of the enterprise is crucial.
Rota wins today’s round of “Stump The Deputy Minister” with a wildly complex, but rather clever scenario wherein a company manages to dodge the ICA — and, potentially, its creditors — by strategically licencing its assets, cashing in tax credits and coming out on the other side as a newly solvent enterprise. Dicerni admits that he’d have to think through whether such a company would at any point be in contravention of the law, which leaves Rota looking ever so slightly pleased with himself.
DVK wants to know just how many companies take advantage of these R&D tax credits; the answer, it seems, is “a whole lot”. Dicerni points out that it’s a very popular incentive, and a generous one at that.
Finally, Peter Braid wants to know if Industry Canada can confirm Nortel’s claim not to have made use of those tax credits within the last decade — no, Dicerni tells him; that is between the company and “the taxman”.
Next up: a scattering of almost random-seeming questions from Mario Laframboise, dealing with everything from national security considerations to bankruptcy proceedings, which Dicerni handles with ease, likely because it doesn’t relate to the specifics of the Nortel case, and thus frees him from having to dance around the competing claims before the committee.
Hey, it’s Peter Braid! Again! He wants to know how we settled on the $300 million threshold for automatic review, and MacDonald notes that it was first established as a result of international treaties, and goes up incrementally on an annual basis. Right now, it’s at $312 million, and within the next few years, will go up to $1 billion. Wow. That’s — quite a threshold. Braid is transfixed by the whole notion, and continues to pepper Dicerni with questions; the deputy minister notes that it was done to improve the perception of Canada as a good place to invest.
Brian Masse gets the last question – which, as the chair notes, seems fitting, since he was the first MP to request this meeting in the first place – and he, too, seems a bit boggled by the looming billion dollar threshold. He asks the witnesses whether that’s especially high, on an international scale, and notes that this would normally be something that would have come up during committee review of the legislation, which never happened because this particular change was done through the budget legislation. Looks like someone has a summer project!
That’s it for the witnesses, and for ITQ, who is now going to be booted out — along with everyone else, that is — for a brief in camera capper to the session. Which is fortunate, as her fingers are now so swollen as to require an extended — or, at least, more extensive than the fifteen minute we’ve gotten between panels before now.
Friday, August 7, 2009