Nortel strikes first tentative product line sale

Nortel Networks has made its first move to trim its product line down after filing for bankruptcy protection by striking a tentative deal to sell its application delivery equipment to Radware Ltd.

No price was given for the purchase of the Layer 4-7 products, which has to be approved by courts in Canada and the U.S. However, it is believed to be in the area of US$18 million.

That wouldn’t dent Nortel’s financial trouble. In its last public financial statement, the company said it lost $3.4 billion in the quarter that ended Aug. 30 on revenue of $2.3 billion.

But the deal could be undone. Under bankruptcy rules, for any asset sale deal Nortel strikes an auction has to be set up under which another bidder could come in and make a higher offer. However, Radware could come back and make another bid. In essence the Radware offer – known in legalese as a Stalking Horse bid – becomes the floor price.

Nortel said in a news release that it had been negotiating the deal with Tel Aviv-based Radware in late 2008. Around that time, after announcing another restructuring, the Toronto-based equipment maker announced it was shopping around its Metro Ethernet division.

Selling Layer 4-7 products is part of its strategy to concentrate on enterprise networking, including Layer 2-3 for access and core networks, wireless LANs, network management and security, Nortel said.

Going to Radware would be the Nortel Application Accelerators (NAA) 510 and 610; Nortel Application Switches (NAS) 3408E, 2424E, 2424 SSL E, 2216E, 2208E; and the Virtual Services Switch (VSS) 5000 Nortel added the application switch product line in October, 2000 when it bought Alteon WebSystems, Inc.

Should the deal be okayed by the courts, they would become the Radware Alteon line. However, Nortel would also be able to sell them under an OEM relationship.

“We believe acquiring Nortel’s Application Delivery Business is a strategic move that will directly benefit Radware and Nortel’s [Alteon] customers,” Roy Zisapel, Radware’s CEO, said in a release. “Our ultimate goal is to provide them with a stronger, integrated product backed by world-class support and a globally-focused organization.”

“We are committed to making this transaction seamless for existing Nortel [Alteon] customers and intend to take the necessary steps to ensure zero disruption to their business when the transfer occurs.”

Radware said it plans to significantly invest in service and support for the existing Nortel [Alteon] customer base by offering a five year support plan. Some Nortel staffers would also be making the move.

Radware makes a range of data centre, security, application, networking and WAN optimization devices for carriers and enterprises. Last week it announced a fourth quarter loss of US$7.1 million on revenues of US$24.9 million, a record for the quarter. Total revenues for 2008 were US$94.6 million, an increase of seven per cent compared with revenues of US$88.6 million in 2007. However, the loss for the year was US$31.0 million.

“Moving forward, Radware and Nortel will work together to ensure the transition is seamless to our customers,” Joel Hackney, president of Nortel’s enterprise solutions division, said in a release.

“We remain focused on our enterprise business to deliver our industry-leading networking infrastructure that comprises our end-to-end unified communications solutions, including real time and wireless networking capabilities, services, security and integrated applications.”

Nortel still has to present a plan to its creditors before it can get out of bankruptcy protection. It isn’t clear when the plan will be brought forward. However, a company official recently told Network World Canada its advisors have told the company the plan has to hit a home run with creditors the first time, so it could be several months.

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