Telecom equipment giant Nortel Networks stunned the markets yesterday by firing its president and chief executive and slashing its 2003 earnings in half amid an accounting probe.
The shake-up rocked a company which has steadily fallen from grace, after heady days as Canada's most valuable firm at the height of the high-tech boom.
Nortel said it was firing president and CEO Frank Dunn 'for cause' and replacing him with William Owens, a former vice chairman of the US Joint Chiefs of Staff who commanded the US Sixth Fleet during Operation Desert Storm.
Former chief financial officer Douglas Beatty and former controller Michael Gollogly, both of whom had been placed on paid leave of absence on March 15, were also 'terminated for cause,' the company said in a statement. Four other finance executives have been placed on paid leave of absence as an independent review grinds on.
The bombshell shocked investors on the Toronto Stock Exchange where Nortel shares plunged 26%. There was carnage south of the border as well, partly spurred by Nortel's woes, as US stocks went into a tailspin. The Dow Jones slumped 136 points, or 1.29%, to 10,343 and the Nasdaq tumbled 43 points, or 2.12%, to 1,990.
The size of Nortel's management purge appeared aimed at reassuring investors that the firm could recapture its glory days and remain a staple of thousands of portfolios across the country and beyond.
The firm said in the statement that it would make a cut of around 50% in previously announced net earnings for 2003. Nortel also said it would restate its financial results for 2001 and 2002 and delay the release of its first-quarter report for 2004 following a review by the company's audit committee.
Nortel, once the darling of the Toronto Stock Exchange, recorded a net loss of $27.3 billion US dollars for 2001 after the telecom spending bubble burst the preceding year, and has been struggling ever since. But it reported a net profit of $732m US dollars for 2003, following a £3.27 billion loss in 2002.
Nortel resisted all attempts to force it to provide more details as to why the executives were fired. Analysts said that, given the ongoing independent probe into the company's accounting practices, it was too early to suggest criminal intent.
