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Avaya Stalks Nortels Assets

Avaya  has been named as a stalking horse bidder for Nortels North American, Caribbean and Latin America (CALA) and Asia Enterprise Solutions business and an asset sale agreement with Avaya for the Europe, Middle East and Africa (EMEA) portion of its Enterprise Solutions business for a purchase price of US$475 million. The bankruptcy court has to set the auction terms.

The stalking horse process applies to the sale of the assets of a bankrupt company. The stalking horse's bid, in this case Avaya's bid of $475 million, defines the assets that are up for bid sets the initial bid during the auction process. Other suitors will have to exceed the bid to get Nortels assets.  On June 19th, Nortel announced  that a joint venture between Nokia and Siemens AG, Nokia Seimens Networks, was named the stalking horse bidder for Nortels CDMA and LTE  Access business units at $650 million. Once the bankruptcy court sets the rules for the auction, rival companies can bid for Nortel's assets.  The auction process can take anywhere from 45 to 60 days to complete, so we should know  the results in the mid-September to mid-October time frame.

Nortel President and CEO Mike Zafirovski said in a statement today "We continue to be fully focused on running our operations and continuing to serve our customers while actively engaged in the sale of our businesses. We have determined that the sale of our businesses maximizes value while preserving innovation platforms, customer relationships and jobs to the greatest extent possible."

According to market research from the Dell'Oro group, quarterly revenue for enterprise telephony has been in decline since Q3, 2007. Avaya and Cisco sit at the top of the pile for revenue, but the difference is close, less than 4%. If Avaya can acquire Nortels enterprise assets, which includes the telephony product lines, channel, and customers, Avaya will leap ahead in market share.

Ron Gruia, Principal Analyst with Frost & Sullivan cautions that if the bid is successful, Avaya will have to be very careful in how they proceed with managing the disparate product lines, for which there is a lot of overlap with Nortels. "Nortel's customers are loyal and they won't just switch out equipment. They will want to amortize their investments. Avaya will have to have a clear roadmap for Nortel customers that Avaya can manage and won't drive existing Nortel customers to writing RFPs when it comes time to upgrade their telephony systems, " Gruia said.

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