Avaya Closes Nortel Enterprise Deal for $900M

Avaya has emerged as the victor in the auction to buy the enterprise business of bankrupt networking vendor Nortel. Avaya will pay $900 million in cash, which is nearly double the $475 million it bid when the stalking horse auction process began in July.

Nortel and Avaya will seek court approval for the deal tomorrow, and they expect the sale to close by the end of the year. Nortel has been under bankruptcy protection since January and has been selling off its assets ever since.

“It was a long process. We almost doubled the purchase price form the initial stalking horse bid to the auction win,” Joel Hackney, Nortel’s president of Enterprise Solutions, said during a morning call with press and analysts. “I think that indicates the clear productive and effectiveness of the process itself.”

As Nortel is currently in bankruptcy protection, the Enterprise division was sold off in what is known as a “stalking horse” asset sale. Avaya made the first bid in July, with the official auction occurring late Friday. Nortel has not officially disclosed the names of the other bidders in the process, but Hackney did note during the call that there were two other bidders.

As part of the deal, Hackney noted that Avaya has committed to retaining at least 75 percent of the Nortel Enterprise workforce. The deal calls for $15 million in payments from Avaya specifically to deal with employee retention.

“We believe this provides our customers with investment protection and a clear path forward,” Hackney said.

Prior to the auction, Verizon, which is a Nortel customer, objected to the sale on concerns about the ability of the new owner to maintain user support. Hackney said during the call that Verizon is an important Nortel customer and that Nortel is committed to supporting the firm. He also does not expect that Verizon’s objections will scuttle the deal.

“We do not expect the Verizon interaction to any way impact the court approval of this deal nor the close of this deal,” Hackney said.

The fact that Avaya was the first stalking horse bidder and the winner of the auction is also a good thing for Nortel. Hackney noted that it lets Nortel utilize the plans it had been building since the original bid and allows the new entity to get to market quicker and integrate quickly once the approvals are completed. Hackney said that in his view, the Nortel Enterprise business will be complementary to the Avaya business.

Until the deal formally closes, Hackney stressed that it will be business as usual at Nortel in terms of customer support.

“With this announcement, we’ve removed another layer of uncertainty,” Hackney said. “We’re committed to ensure our customers can fully leverage investments they’ve made in the past and also benefit from the complementary capability of the Nortel and Avaya portfolio going forward.”

Even though 2009 been a difficult year for Nortel, the enterprise unit hasn’t been silent about putting out new releases. In May, the division rolled out a new core networking virtual services platform, a new secure router platform and a new Unified Communications management solution.

The sale of Nortel’s Enterprise business is the third such business unit divestiture by Nortel this year. In April, Nortel sold off its Alteon application networking gear to Radware for $18 million. In July, Nortel sold off its wireless CDMA and LTE assets to Ericsson in a deal worth $1.13 billion.

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