Avaya, the manufacturer of corporate phone systems and software, is to acquire Nortel Networks‘ corporate networking business for $915m in cash – almost double its initial $475m “stalking horse” offer.
The deal, which is subject to court and regulatory approval, includes $15m for an employee retention programme. As part of the transaction, Nortel is also selling shares of its government solutions and DiamondWare voice technology businesses.
Nortel, the Canadian telecommunications equipment maker operating under Chapter 11 protection, agreed to sell its enterprise network business, its second largest division, to Avaya after the US-based company outbid a rival in an extended three-day auction which began on Friday.
Nortel declined to identify the other bidder, but Siemens Enterprise Communications, a joint venture of Siemens and Gores Group, the US private equity firm, had earlier said it intended to bid in the auction.
SEN has a strong base in Europe but has been looking to expand its presence in the US corporate networking market.
The deal should help ease customer concerns about the long-term viability of Nortel’s corporate business. “We have removed a big uncertainty for our customers,” said Joel Hackney, the unit’s president, in a conference call with investors. “This provides both our current and future customers with real investment protection.”
Last week, Verizon Communications, the largest US coms group, warned it might oppose the sale to Avaya, citing public safety and security concerns.
Since then however, the two companies have been in talks to resolve Verizon’s concerns about its contracts with Nortel.
The deal represents an important win for Avaya, which was taken private in a 2007 takeover by Silver Lake and TPG.
Like the Nortel enterprise division, Avaya makes network equipment such as routers, internet protocol phones, switches and related security products for large companies, and competes directly with Cisco, the corporate phone system market leader.
Avaya, based in New Jersey, had previously made a $475m “stalking horse” offer for the enterprise unit, Nortel’s second-largest by revenues.
Nortel’s enterprise unit has annual revenues of about $2.4bn, but has been hard hit by the recession as companies have cut back on their IT spending.
Revenues fell 28 per cent to $465m in the second quarter, although in the longer term the business is expected to benefit from the trend towards unified communications built round IP-based voice and data networks.
Sweden’s Ericsson, the world’s largest maker of wireless networks, won an auction for Nortel’s wireless unit in July, agreeing to pay $1.13bn after six rounds of bidding and trumping an opening offer of $650m from Nokia Siemens Networks.
