Nortel Enterprise Goes to Avaya After Weekend Auction

After a full weekend of auction activity, Avaya Inc. has emerged as the winning bidder of insolvent Nortel Networks’ enterprise division.

The privately held Avaya, which competed against rival equipment maker Siemens, will pay $900 million for the unit, almost double its original offer of $475 million. Avaya also will set aside $15 million for an employee-retention program. Nortel and Avaya hope to close the transaction some time in the fourth quarter.

Avaya’s victory gives it Nortel’s global Enterprise Solution business as well as some of the government-focused assets and DiamondWare Ltd., a software development offshoot of Nortel. But the deal isn’t done yet – bankruptcy courts and regulatory agencies in the United States, Canada, France and Israel still must give the union their blessing. And in Delaware, there’s a question over whether a plea by Verizon Communications Inc. not to allow a sale to Avaya will hold up the buyout’s progress. Verizon fears Avaya will refuse to maintain and repair the Nortel equipment it’s sold to government, medical and other entities, thereby endangering homeland and national security, it said last week. There was no word from Verizon on that front Monday morning.

Meanwhile, Nortel executives called the sale “fantastic news for our customers,” perhaps in an attempt to mitigate the concerns Verizon has posed.

“Through the deal close and beyond, we will deliver on our stated customer commitments and maintain high levels of service and support,” Joel Hackney, president of Nortel Enterprise Solutions, said in a prepared statement.

Chuck Saffell, CEO of Nortel’s Government Solutions branch, made a similar comment.

“Our goal continues to be helping our customers provide security, livelihood and well-being for the citizens of the United States,” he said in a press release.

Avaya’s Kevin Kennedy, president and CEO, agreed.

“Our successful bid brings us closer to adding Nortel and its complementary channel, portfolio, research and development, and global presence to Avaya,” he said. “We believe the acquisition brings inherent value to both organizations’ customers, employees and partners, and we look forward to its successful conclusion.” 

To that end, Nortel channel partners, too, should expect business-as-usual, executives noted. For now, anyway. They said partners for both Nortel and Avaya will “have opportunities to grow their business as the move to unified communications accelerates.”

In real terms, that likely means Nortel partners will have to transition their customers to Avaya platforms.

“I can’t imagine that Avaya will continue to provide support and development for Nortel’s old product line,” Jeff Wiener, president of reseller Digitcom Canada, an Avaya partner, told PHONE+ in July. “Why would they?”

The question on such a transition is when. As with any integration, Avaya’s digestion of Nortel will take months, if not years, so it stands to be a while before Avaya discontinues any Nortel products.

Indeed, integration will be a huge challenge for Avaya, Rob Arnold, senior analyst of enterprise communications for Current Analysis also told PHONE+ in July.

“Not only do they have to address … reliability issues, whether perceived or real, but they’re going to have to learn the Nortel support model or come up with some kind of new model to drive efficiencies,” Arnold said.

Nonetheless, both Wiener and Arnold expect little to change for channel partners right away. And other Nortel affiliates, including the International Nortel Networks Users Association (INNUA) and the Nortel Distributor Alliance Council, said they, too, are confident they and their customers will continue to receive appropriate support.

There are some observers, though, who do think Avaya’s purchase will result in hundreds of Nortel R&D job cuts and general mishandling of Nortel talent.

But there are more steps to be taken before any such outcomes transpire. The next one takes place tomorrow, when courts in the United States and Canada will hold joint hearings on the proposed sale and determine whether it will be allowed to proceed. That’s good for Avaya but not so good for Nortel shareholders. None of those investors “will receive any value” from the creditor protection proceedings, Nortel said, adding it expects those proceedings to “result in the cancellation of these equity interests.”

Nortel managed to get rid of the enterprise unit about two months after selling its wireless division to Ericsson. The only remaining asset that could bring Nortel a chunk of change is the highly coveted Metro Ethernet Networks group.

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