Avaya Bids $475 Million for Nortel Enterprise Business

Nortel, the bankrupt communications vendor looking to sell off its businesses to raise money, has accepted a $475 million bid from Avaya for its Enterprise Solutions Business. The agreement sets the floor for the bidding for the business unit, and gives Avaya the right to match other bids. The announcement comes a month after Nortel announced a similar agreement with Nokia Siemens Networks for two other business units. One analyst said he expects consolidation in the bloated business communications market to continue.

Bankrupt communications vendor Nortel Networks is continuing to sell off its businesses-most recently, Avaya put in a bid for its enterprise division-and the fire sale looks like it will continue.

Nortel July 20 announced a $475 million "stalking horse" agreement with Avaya for its Enterprise Solutions Business, which includes such assets as Nortel's UC (unified communications) and government business.

The stalking horse agreement is similar to the one Nortel made with Nokia Siemens Networks, which in June made a $650 million bid for Nortel's CDMA (Code Division Multiple Access) wireless business and LTE (Long Term Evolution) technology.

Like the Nokia Siemens deal, Avaya's bid sets the floor for bidding on Nortel's enterprise unit. If a rival were to place a larger bid for the unit, Avaya would have the option to match or beat the bid.

The move comes as officials with Nortel, which filed for Chapter 11 bankruptcy protection earlier this year, look to raise money through the sale of their businesses. When the company first entered into bankruptcy, officials spoke of creating a restructuring plan. Now the focus is on selling off its businesses, according to President and CEO Mike Zafirovski.

"We continue to be fully focused on running our operations and continuing to serve our customers while actively engaged in the sale of our businesses," Zafirovski said in a statement. "We have determined that the sale of our businesses maximizes value while preserving our innovation platforms, customer relationships and jobs to the greatest extent possible."

It's still unclear what Nortel's endgame will be, Yankee Group analyst Zeus Kerravala said in an interview.

"They may be tearing away enough parts so that what remains can be profitable on its own," Kerravala said. "It's like a yard sale. Once you sell out enough stuff, you can then grow what you keep."

For Nortel, that would most likely be its carrier businesses, which has been a core piece of Nortel's history.

For customers of Nortel's enterprise business, an acquisition by Avaya would be a huge win, Kerravala said.

"For Nortel's customer base, there's been a long period of unprecedented uncertainty," he said. "That time is over."

The deal also would make the top vendor of enterprise communications technology, overtaking Cisco Systems. Kerravala estimates that with Nortel, Avaya would have about 25 percent of the enterprise communications market, with Cisco holding about 16 percent.

"The addition of Nortel Enterprise Solutions will increase Avaya's global scale, expand our channel partner network, and strengthen our world-class portfolio of products and services," Avaya President and CEO Kevin Kennedy said in a statement. "This is a strategic opportunity to acquire talent and complementary assets that position the combined company for growth and success."

Nortel's Enterprise Solutions Businesses garnered $2.4 billion in revenue in 2008. Kerravala said he expects Avaya would do a better job than Nortel generated profits from it.