Avaya wins Nortel enterprise business for $900 million

Avaya reportedly outbids Siemens Enterprise for Nortel's Ethernet switching and VoIP unit

Avaya has emerged as the winning bidder for Nortel’s enterprise business, beating out Siemens Enterprise Communications over the weekend.

Avaya has emerged as the winning bidder for Nortel’s enterprise business, reportedly beating out Siemens Enterprise Communications over the weekend.

The firm will pay $900 million in cash for the unit, Nortel’s Government Solutions group and DiamondWare Ltd., a Nortel-owned maker of softphones. Avaya will also contribute an additional pool of $15 million for an employee retention program. That price is nearly twice what Avaya was initially said to be buying the enterprise business for back in July before auction bidding kicked in.

Slideshow: The rise and fall of Nortel

Avaya has sought Nortel's enterprise business in hopes of boosting its share of the enterprise telephony and unified communications markets, and getting more customers to migrate to its IP line of communications products

The sale, expected to close later this year, is subject to court approvals in the U.S., Canada, France and Israel as well as regulatory approvals, other customary closing conditions and certain post-closing purchase price adjustments. Telecom carrier Verizon, however, is expected to contest the sale on the grounds that Avaya does not plan to retain customer support contracts between Nortel and Verizon.

Nortel is confident the sale will go through without any snags.

"We do not expect the Verizon interaction to impact court approval or the close of this deal," said Joel Hackney, president of Nortel Enterprise Solutions. "We will continue to go forward in supporting customers."

Hackney would not say whether Nortel is engaged in the negotiations between Avaya and Verizon on the future of certain customer support contracts, mentioning only that Nortel supports Verizon as a customer as well as the carrier’s customers.

Hackney also said there were two bidders for the enterprise unit but would not identify the second suitor.

Nortel customers, meanwhile, hope the deal works out in their interest.

"Nortel earned the trust of our user group members by delivering innovative, reliable communications solutions and ensuring high-levels of service and support," said Victor Bohnert, Executive Director of the International Nortel Networks Users Association, in a prepared statement. "With the announcement of today's purchase by Avaya, we look forward to extending that relationship forward to serve the business communications needs of our constituency base across the globe."

Added INNUA President Steve Ford in a separate statement, "As INNUA members, we view the relationship with our vendor as a strong partnership. By regularly sending input and receiving feedback from Nortel, we have been provided with the solutions that our businesses require. In return, we have maintained and grown our systems with Nortel products over the years. We are approaching Avaya with the same expectations, and I am optimistic that the results will be positive for both Avaya and for INNUA members."

Nortel will seek Canadian and U.S. court approvals of the proposed sale agreement at a joint hearing on September 15, 2009. The sale close is expected late in the fourth quarter. In some EMEA jurisdictions this transaction is subject to information and consultation with employee representatives.

As previously announced, Nortel does not expect that its common shareholders or the preferred shareholders of Nortel Networks Limited will receive any value from the creditor protection proceedings and expects that the proceedings will result in the cancellation of these equity interests.

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