Deadline closes for Nortel enterprise sale

Avaya not assured of a win after competition for Nortel's enterprise business heats up

Avaya may be competing against other suitors in its efforts to acquire the enterprise assets of Nortel Networks, published reports indicate.

Friday was the deadline to place bids on the Nortel unit that include switches, routers, unified communications and phones. As of Friday evening, no companies other than Avaya publicly announced offer. Both Reuters and the Canadian Broadcasting quoted Nortel officials as confirming other unidentified firms placed bids.

Nortel of Toronto, Canada has been operating under bankruptcy protection since January and is trying to sell its business units.

Basking Ridge, N.J.-based Avaya placed a $US475 million stalking horse bid in July. If anyone other than Avaya bids, then a U.S. bankruptcy court would hold an auction Sept. 11.

Other companies rumoured to be interested are MatlinPatterson, a private equity firm holding about $US400 million in Nortel bonds, and Munich-based Siemens Enterprise Communications, also known as SEN Group. MatlinPatterson recently formed an advisory group comprised of former Nortel executives intending to build a new company around Nortel's assets.

MatlinPatterson bid $US725 million on Nortel's carrier wireless group, but the winner of the auction was LM Ericsson of Sweden, which said it would pay $US1.13 billion.

On Thursday a Siemens spokesperson, Silvie Casanova, told Network World Canada the firm does not comment on speculation. As of Friday, Siemens had not announced a bid.

"SEN made it clear in May they want to make a play for the enterprise unit," said Mark Tauschek, lead analyst for London, Canada-based Info-Tech Research Group. "They sat quietly in the background as Avaya made a stalking horse bid."

SEN also has the OpenStage phones and OpenScape products line, which has unified communications, messaging and other products.

SEN is 51 per cent owned by The Gores Group, a Los Angeles-based private equity firm, which acquired its stake in Siemens Enterprise in 2008. Gores Group also owns switch and router maker Enterasys Networks, formerly known as Cabletron.

If SEN places a bid for Nortel enterprise, it is "not necessarily for the product capabilities," Tauschek said Friday morning.

"They're not looking so much for that capability and the product line," he said, but more as a means of increasing its share in the North American market.

Another analyst agreed.

"Siemens has coveted the North American telephony network for years and never made much ground," said Zeus Kerravala, senior vice-president at the Boston-based Yankee Group. "They could continue to do what they've been doing and still they would get the same result, they would never make much ground."

The Nortel enterprise product line "would give them a significant position in the North American market," Kerravala said. He agreed there is considerable overlap between Nortel and the combined product line of Siemens and Enterasys.

"If you're a Nortel, Avaya or Siemens customer you should be concerned," Kerravala said. "You won't really know which products will go until they're gone. If I were a customer of Nortel's I would probably be very cautious about making a decision right now."

Avaya used to make switches under the Cajun brand name but warned a year ago it would stop supporting them.

If Avaya succeeds in acquiring Nortel's enterprise assets it would be inherit Nortel's Ethernet Routing switches.

"On the switching and routing side Avaya wants that stuff," Tauschek said. "They want that intellectual property and that capability whereas Gores already has that with Enterasys."

Avaya was spun off in 2000 as the enterprise unit of Lucent Technologies (formerly AT&T's Bell Labs unit), which has since merged with French telecom equipment maker Alcatel. Avaya was taken private two years ago.

When Avaya placed its bid for the enterprise unit, it was well received by the Nortel Networks Users Association At the time, the association's executive director, Victor Bohnert, said the bankruptcy protection hurt Nortel's chances of selling new products.

Nortel inherited some of its enterprise products when it bought Bay Networks in 1998 for $US9 billion. Its enterprise lineup includes phones, PBXs, firewalls, Ethernet routing switches, virtual private networking, network access control, key systems, voice switches and media gateways.

Nortel is trying to sell most of its assets so it can pay bondholders and other creditors.

Though Ericsson was the winning bidder in the auction for Nortel's carrier wireless unit, though opposition politicians in Canada's Liberal party have demanded a review, plus four-way talks among Industry Canada, Ericsson, Nortel and Research in Motion Inc.

For its part, Waterloo, Canada-based RIM tried to buy Nortel's LTE patents earlier this year and complained it was shut out of the bidding process.

RIM's dispute with Nortel was the subject of a hearing last month in Ottawa of the House of Commons Standing Committee on Industry, Science and Technology.

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Greg Meckbach

Network World Canada
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