BREAKING NEWS: Ottawa could stop Nortel-Avaya deal

Industry Canada announced Thursday it will only allow Avaya Inc. to buy Nortel Networks Corp.’s enterprise business if Avaya can prove the US$915 million deal is beneficial to Canadians.

Industry Minister Tony Clement announced the review despite the fact that he is not reviewing the more expensive foreign acquisition of Nortel assets. LM Ericsson of Sweden has agreed to buy Nortel’s carrier wireless assets for US$1.13 billion.

“Avaya filed an application for review under the Investment Canada Act (ICA) of its proposed acquisition of Nortel’s Enterprise Solutions Division,” Clement stated in a press release. “The Nortel assets being sold to Avaya exceed the threshold set by the ICA ($312 million); therefore a review is automatically required. I only approve applications where the investor demonstrates that its investment is likely to be of net benefit to Canada.”

Nortel has been operating under bankruptcy protection since Jan. 14, and is trying to sell most of its business assets to repay creditors, including bond holders and former employees who are owed severance pay. The telecom equipment maker – founded in 1895 as Bell Canada’s hardware manufacturing arm and known for years as Northern Electric – once dominated the Toronto Stock Exchange but has lost money nearly every year since 1998.

The Investment Canada Act requires a review of all foreign acquistions, if the buyer is based in a member of the World Trade Organization, and the value is greater than $312 million.

That threshold, in the past, referred to the book value. Although Parliament changed that to the enterprise value, that change had not taken effect by the time Ericsson agreed to buy the carrier wireless assets.

In testimony before the House of Commons Standing Committee on Industry Science and Technology Aug. 7, Nortel Chief Strategy Officer George Riedel said the “book value” of what Ericsson is buying is only US$149 million.

The book value of the enterprise assets Avaya wants to buy was not immediately available.

“Avaya recognizes the authority and jurisdiction of the Minister of Industry, respects the process and looks forward to working with Industry Canada and the Investment Review Division to finalize a transaction that we believe will bring inherent benefit and value to Canada,” an Avaya spokesperson stated in an e-mail to Network World Canada.

IT World Canada will provide updates to this story.

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