Business

Avaya wins Nortel enterprise unit with $900 million bid

Posted September 14, 2009 7:42 a.m. EDT

— Avaya will acquire the Enterprise Solutions business and other assets from bankrupt Nortel for $900 million, Nortel announced early Monday.

The news will directly affect a portion of Nortel’s remaining 1,800 employees at its campus inn RTP.

Nortel declared Avaya the winner in an auction that had been approved by bankruptcy courts in the U.S. and Canada. The auction started Friday. At least one other firm entered the bidding, thus helping drive up the price to nearly double Avaya's original offer. Siemens Enterprise Communications also wanted the Nortel business.

However, Avaya may still face other hurdles in making the deal. Verizon has challenged the acquisition in court, but Avaya said it would work with Verizon to resolve concerns about customer support and other matters.

Avaya was the frontrunner entering the auction, having made a $475 million so-called “stalking horse” bid. The court-awarded distinction enabled Avaya to match other offers.

As part of the deal, privately held Avaya also agreed to offer $15 million for employee retention bonuses.

"Our successful bid brings us closer to adding Nortel and its complementary channel, portfolio, research and development and global presence to Avaya," said Kevin Kennedy, Avaya's chief executive officer, in a statement. "We believe the acquisition brings inherent value to both organizations' customers, employees and partners, and we look forward to its successful conclusion."

If the bankruptcy courts approve the auction’s results, Avaya also will acquire Nortel Government Solutions and DiamondWare, Ltd. DiamondWare is a software development firm based in Arizona.

A combined Avaya-Nortel business also would surpass Cisco as the top provider of enterprise telecom equipment, with 27 percent marketshare compared to 21 percent for Cisco, according to analyst firm Frost & Sullivan.

"This is fantastic news for our customers, as this will empower us to continue to deliver industry-leading solutions and services focused on unlocking the enterprise business potential enabled by unified communications,” said Nortel Enterprise Solutions President Joel Hackney.

“It provides the capability to chart our future with laser-focus, enabling customers to compete in new ways with greater scale and resources,” he added in a statement. “We look forward to working closely with our customers, partners and stakeholders during this pre-close phase to ensure that we continue to innovate to meet customers' needs with high-performance, efficient and secure communications solutions.”

The Enterprise unit provides phone systems and other equipment. It generated some $2.4 billion in revenue in 2008.

Avaya first bid for the business group in July.

Nortel has already sold off its wireless business to Ericsson for more than $1 billion.

Still up for sale is Nortel’s Metro Ethernet Network business.