Avaya wins bidding war for Nortel enterprise unit

Avaya Inc. will proceed with its plans to acquire the enterprise assets of Nortel Networks Corp. following a bid worth US$915 million, the company said Monday.

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Other companies rumoured to have been interested are MatlinPatterson, a private equity firm holding about US$400 million in Nortel bonds, and Munich-based Siemens Enterprise Communications, also known as SEN Group.

Nortel has been operating under bankruptcy protection since January and is trying to sell its business units. Its enterprise product portfolio, which was built up in part through its acquisition of Bay Networks in 1998 for US$9 billion, includes phones, PBXs, firewalls, Ethernet routing switches, virtual private networking, network access control, key systems, voice switches and media gateways.

For more news on the Nortel breakup Check out our Nortel interactive timeline

As a condition of the deal, Avaya is required to hire at least 75 per cent of Nortel’s enterprise employees.

“We believe this combination provides for our current and future customers is investment protection – and a clear path forward,” Joel Hackney, president of Nortel Enterprise Solutions, said Monday during a conference call. “We absolutely will stand behind our customer commitments.”

Hackney said Nortel expects bankruptcy courts will approve the deal Tuesday and it will close in late December.

The US$915 million Avaya is paying is comprised of US$900 million in cash to Avaya and US$15 million in “employee retention.”

Hackney said the companies have “not defined more details” on the $15 million.

Avaya’s sucess comes on the heels of a complaint lodged by Verizon in a Delaware court, claiming that Avaya refuses to maintain contracts for equipment Verizon bought from Nortel that’s in use by the U.S. federal government.

“Without this ongoing maintenance, service and support by the debtors, the continued communications capabilities of the government and business customers that are served by Verizon through the resale of the debtors (services) … are at significant risk of disruption,” Verizon said in the court documents.

Hackney said Monday he does not expect the dispute between Verizon and Avaya to stop the acquisition.

He would not confirm the names of the other two bidders but said that would eventually be revealed in court documents.

-With files from Greg Meckbach

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