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Avaya agrees to buy Nortel enterprise unit

Greg Meckbach | July 21, 2009
Nortel has been operating under bankruptcy protection since January.

TORONTO, 20 JULY 2009 - Nortel Networks Corp. today announced it has entered a "stalking horse" agreement in which Avaya Inc. of Basking Ridge, N.J. will buy Nortel's enterprise units for US475 million.

"Short term it's good for enterprise buyers," said Brownlee Thomas, Montreal-based principal analyst at Forrester Research Inc. "For Nortel, it says we've got hope. Of course we don't always know how long these products will be supported."

The move comes about a month after Nokia Siemens Networks entered into a similar agreement to buy Toronto-based Nortel's carrier wireless assets for US$650 million.

The agreement is subject to approval from U.S. bankruptcy court and the bankruptcy division of the Ontario Superior Court of Justice. Other companies would have the option to propose higher bids.

Nortel has been operating under bankruptcy protection since January.

The agreement with Avaya was praised by the Nortel Networks Users Association.

"It's a step we've been waiting for for some time," said the association's executive director, Victor Bohnert. "Nortel's product line has never been in question. They are at the top especially with unified communications."

But Nortel has lost money almost every year since 1998 (it lost more than $27 billion in 2001 alone) and had to restate financial results several times. It filed for creditor protection Jan. 14.

"The creditor protection process has hurt Nortel's chance of selling new products and engaging new partners," Bohnert said.

Nortel inherited some of its enterprise products when it bought Bay Networks in 1998 for US$9 billion. Its enterprise lineup includes phones, PBXs, firewalls, Ethernet routing switches, virtual private networking, network access control, key systems, voice switches and media gateways.

However, it's not clear yet which products Avaya will continue to develop and support.

Lynn Newman, Avaya's director of medial relations, said the company could not answer questions about products because it's too early in the process.

"We really can't answer questions about the work force now or any other integration questions right now," she added.

But Zeus Kerravala, senior vice-president at the Boston-based Yankee Group, said it's his understanding all Nortel enterprise products will go to Avaya.

"There's a lot more synergy between them than people realize," Kerravala said, because Avaya focuses mainly on voice products.

"It provides Avaya with an opportunity to become really an end to end vendor."

Nortel officials did not immediately respond to a request for comment, other than a press release posted on the corporate Web site.

Avaya was spun off from Lucent Technologies Corp. in 2000 and makes unified communications and other telephony products for corporate users.

Kerravala said buying Nortel's enterprise products would help Avaya for several reasons. Avaya has a direct sales force which sells about 70 per cent of its equipment, whereas Nortel uses a lot of channel partners, including systems integrators and telcos.


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