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Avaya Wins Auction For Nortel. What's Next?

If you have been following the Nortel break-up, you know that Avaya won the stalking horse bid for Nortel. The final price is $900 million, a bit less than twice Avaya's initial bid of $475 million, and encompasses all of Nortel's Enterprise assets including unified communications, switching and routing and security product lines. The deal also includes approximately $15 million for employee retention. Nortel expects the court to approve the deal this week and close by the end of 2009, pending r

Avaya's own response is somewhat circumspect. Avaya's short response in a press release said, "Our successful bid brings us closer to adding Nortel and its complementary channel, portfolio, research and development, and global presence to Avaya," said Kevin Kennedy, president and CEO, Avaya. "We believe the acquisition brings inherent value to both organizations' customers, employees and partners, and we look forward to its successful conclusion." 

Getting Nortel's global channel and US Federal Government business is a big win for Avaya. According to Dell'Oro Group's recent 2nd quarter, 2009, Enterprise Telephony Report, Avaya was already the market leader in manufacturing revenue which includes IP phones, PBX lines, legacy phones and applications, with 16.3%, while Cisco had 13.7% and Nortel had 10%. Combining Nortel's assets with Avaya's leapfrogs the company far ahead. No one wants to talk about the overlap in the company's product lines--preferring to discuss the complimentary aspects instead. But that ignores the fact that Nortel's enterprise telephony lines do compete with Avaya's. As Ron Gruia, Principle Telecom Analyst at Frost and Sullivan, noted back when Nortel announced Avaya as the stalking horse bidder, "Expect a lot of streamlining. Avaya can't expect to manage 25 lines of phones."

The switch and router business is another matter. Nortel is barely a player in the enterprise switch market. While getting a switch product line may seem good for Avaya, they will have to compete with an existing install base of Cisco and HP switches. That is a tough, uphill battle that simply may not be worth taking on.

What Avaya does long term is anyone's guess. Avaya has had a jump on planning the integration of the two companies and hopefully we will find out more in the coming months.

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