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GENBAND Set as First Nortel Carrier VoIP Bidder

GENBAND on Wednesday got government go-ahead to be first in line to buy bankrupt Nortel Networks’ carrier VoIP assets. If other firms decide to bid, an auction will take place on Feb. 24 in New York.

The two companies on Dec. 22 said GENBAND was prepared to buy the unit and its associated intellectual property for $282 million – a fraction of the division’s $870 million in 2008 revenue.

But here’s the strange part: GENBAND’s bid actually is worth $182 million after accounting for various closing costs, according to a new Ernst & Young Monitor’s Report.

GENBAND also said in December it would hire at least 1,638 Nortel employees. Nortel’s carrier VoIP division employs 2,185 full-time workers, 592 of whom live in Canada.

There are some other eyebrow-raising bits of information in the Ernst & Young filing. For example, Nortel could pay up to $5 million in break-up fees “in certain circumstances,” according to Ernst & Young. That’s the only information other than that Nortel could pay $3.33 million of that in cash for reasons including if GENBAND is not the successful or alternate bidder.

Finally, Nortel has agreed to pay a $3.6 million “incentive fee” to One Equity Partners, a private investment firm that owns 35 percent of GENBAND and gave GENBAND the money for the carrier VoIP transaction. Ernst & Young said it understands the fee “is intended to defray the cost of One Equity Partners having participated in various of Nortel’s sales processes and that One Equity Partners has indicated that its financial sponsorship of the GENBAND agreement is conditional upon receipt of the incentive fee.”

So, to translate: Nortel needs to pay us back for losing out on the Metro Ethernet Networks auction (One Equity Partners was backing Nokia Siemens Networks in that deal) or else GENBAND is out of luck?

The Nortel carrier VoIP unit has been on the auction block for eight months.


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