Nortel Networks Corp. Monday announced it has entered a “stalking horse” agreement in which Avaya Inc. of Basking Ridge, N.J. will buy its enterprise units for US$475 million.
If approved, the sale would “bring a more diverse channel mix,” to Avaya, said Lynn Newman, Avaya’s director of media relations.
“We have been moving more to selling through channels and Nortel has strong relationships with systems integrators and service providers as well as their channel network that sell to their small and medium enterprises,” Newman said. “We would expect those capabilities would complement our channel network that is growing and we’d expect that to bring a more diverse channel mix.”
Avaya has a direct sales force which sells about 70 per cent of its equipment, said Zeus Kerravala, senior vice-president at the Boston-based Yankee Group.
“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.”
The move comes about a month after Nokia Siemens Networks entered into a similar agreement to buy 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.
“This is first step and the next step is for Nortel to go to the bankruptcy court to name us the stalking horse bidder,” Newman said. “That has not yet happened and that would be their next step in the process. After that happens the court establishes the bidding procedures and an auction is typically held about 30 to 60 days after the court’s ruling.”
Nortel has been operating under bankruptcy protection since January.
The Toronto-based equipment manufacturer 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,” said Victor Bohnert, executive director of the Nortel Networks Users Association.
He added his group is in favour of Avaya buying the enterprise unit.
“It’s a step we’ve been waiting for for some time,” Bohnert said. “Nortel’s product line has never been in question. They are at the top especially with unified communications.”
Brownlee Thomas, Montreal-based principal analyst at Forrester Research Inc., said an Avaya buy would be good for Nortel users in the “short term.”
“For Nortel, it says we’ve got hope,” Thomas said. “Of course we don’t always know how long these products will be supported.”
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.
Newman 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.
Newman said Avaya has about 200 employees in Canada, most of who work at the 10-year-old headquarters in Markham.
Kerravala said it’s his understanding all Nortel enterprise products will go to Avaya.
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. Its latest product suite is Aura, which uses sessions initiation protocol to let PBXs from different vendors communicate with each other.
Thomas said it’s “doubtful” anyone else would be interested in acquiring Nortel’s enterprise unit.
If Avaya buys the enterprise unit and Nokia Siemens Networks buys the carrier wireless assets, which include CDMA and LTE technologies, this would leave Nortel with its metro Ethernet unit, for which is it also searching for buyers.