Avaya bids $US475m for Nortel's IP telephony & UC arm

Stuart Corner
Tuesday, 21 July 2009 06:36

IT Industry - Strategy

Avaya has bid $US475m for substantially all of the assets of Nortel's Enterprise Solutions business globally along with shares in Nortel Government Solutions Incorporated (NGS) and DiamondWare Ltd.

Like Nokia Siemens offer for Nortel's CDMA and LTE business, the offer is structured as a 'stalking horse' bid, creating the option for the bankruptcy court to solicit better offers from other bidders. And according to a blog posting from Allan Sulkin, president and founder of TEQConsult Group, "Siemens/Gores Group is still not out of the picture. The Siemens internal message issued to employees does not cede Nortel ES to Avaya, leaving open the possibility it could still outbid Avaya."

(Meanwhile The Wall Street Journal is reporting that Silver Lake Partners, the private equity firm that owns Avaya, is once again interested in buying Tandberg A Silver Lake-Tandberg deal was rumoured just under a year ago.)

Nortel claims the offer comes at a time when customer service levels at multi-year highs. Nortel CEO, Mike Zafirovski, said the deal "represents the best path forward, and we are advancing in our discussions with interested parties for our other businesses...Today's agreements underscore the value of Enterprise Solutions and the investments we have made in enterprise telephony, unified communications and data networking core competencies. If successfully completed, this transaction will provide clarity on the path forward for our enterprise customers, partners and employees, and enable the industry to continue to benefit from Nortel-created technology, know-how and leading-edge innovation."

According to Avaya president and CEO, Kevin Kennedy, "The addition of Nortel Enterprise Solutions will increase Avaya's global scale, expand our channel partner network and strengthen our world-class portfolio of products and services. This is a strategic opportunity to acquire talent and complementary assets that position the combined company for growth and success."

However there are potential complications: Nortel has a close relationship with Microsoft, the innovative Communications Alliance into which it poured a great deal of product development effort, and there is no certainty that either Avaya or Microsoft would want to continue this following any acquisition.

Commenting on the offer on his blog site, Zeus Kerravala, SVP enterprise research at The Yankee Group said: "[$US475m] is about half of this year's predicted revenue. This may seem high considering the lack of profitability from Nortel but you can bet Avaya will squeeze much of the excess fat off of the Nortel bone and have it be profitable sooner than later."


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