As bankruptcies spread, rival firms benefit

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Nortel, the Canada-based telecom equipment maker, filed for Chapter 11. Now, several of its competitors may buy its most valuable divisions. Welcome to a world where a bankruptcy can be a good thing, at least for the troubled company's rivals.

According to The Wall Street Journal, Avaya, a phone equipment company, and Siemens Enterprise Communications are both likely to bid for pieces of Nortel. The Journalreports that"Nortel Networks Corp. is in talks to sell its two main businesses to rivals, a sign the firm could break itself apart rather than emerge from bankruptcy as planned."

The process, which will probably spell an end to Nortel as an operating entity, is likely to be a template for other industries. The next big move in this direction may be the bankruptcy of Chrysler. It is the weakest of The Big Three, and the U.S. government may elect to encourage a buy-out by GM (GM) before taxpayer money goes into the industry. A "merger" would allow the elimination of tens of thousands of jobs and cutting of factories and brands. Those moves could cut the total amount of capital the federal government would need to put into Detroit.

With car parts suppliers struggling there are likely to be bankruptcies and consolidations in that industry as well.

And, of course, there are always the big banks. The Fed and Treasury still have to figure out with to do with them

Douglas A. McIntyre is an editor at 24/7 Wall St.

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