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Tuesday, September 15, 2009

Avaya Wins Auction for Nortel Unit for $900 Million

Avaya has been chosen to acquire Nortel's Enterprise Solutions business and Diamondware for $900 million. Avaya's deal for bankrupt Nortel still must be reviewed by U.S. and Canadian courts. Verizon Communications and Research In Motion are challenging Nortel's acquisition by Avaya, claiming a threat to U.S. national security.

Avaya is the chosen one. The New Jersey-based company was selected -- instead of Siemens Enterprise Communications -- to acquire Nortel's Enterprise Solutions business and Diamondware, a Nortel-owned business, the company announced Monday.
Avaya will pay $900 million in cash for the voice, data and government systems businesses, exactly double the amount it agreed to pay just two months ago. Avaya also has agreed to offer an additional $15 million for an employee-retention program.

"We are excited to not only complete the process, but more importantly what this does for signaling to the marketplace, to our customers, and to our employees on the path forward," said Nortel Enterprise Solutions President Joel Hackney in a conference call. "We believe the combination provides our current and future customers with investment protection and a clear path forward."

"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 of Avaya. "We believe the acquisition brings inherent value to both organizations' customers, employees and partners, and we look forward to its successful conclusion."

Strategic Move

While the long bidding and auction process for the Canadian telecommunications equipment maker, which was under Chapter 11 protection since January, is close to complete, the deal is still subject to regulatory approvals in the U.S. Bankruptcy Court for the District of Delaware and the Ontario Superior Court of Justice.

Hackney said regulatory proceedings will begin Sept. 15 and expects the acquisition to be complete by late December.

Avaya's victory was no surprise. The acquisition means Avaya will expand its global reach, increase the number of partners, and increase the quality of its products and services, according to the company.

Winning the bid also allows Avaya to better compete against telecom giant Cisco Systems.

The International Nortel Networks User Association has announced its approval of the acquisition.

"Both Nortel and Avaya have been at the forefront of delivering high-quality, innovative products to the market," said Victor Bonhart, INNUA director. "With their strengths now combined, we believe the customers of both companies will be true winners of this deal."

Bonhart also said the group is excited to begin working with Avaya, and is ready to return to giving its members education and other services.

Facing Challenges

INNUA President Steve Ford said he is relieved at the outcome, and added that the group has reached out to Avaya executives and Avaya's user groups to plot a path forward.

"While I cannot tell you with certainty what that path will look like, I can assure you INNUA will continue to deliver the same great value to you," Ford wrote in a letter to customers on Monday.

The win, however, already faces some challenges, predicting a bumpy path forward.

Avaya has faced some challenges from both Verizon Communications and Research In Motion about the deal. Both companies in court filings contested Avaya's bid, claiming Avaya's control over Nortel's business unit would compromise U.S. national security.

Verizon, one of Nortel's largest customers, in a complaint filed with the court claimed its "communications networks are critical to the operation of the federal government, and the defense, safety, health and security of the American public." Verizon fears Avaya will drop Verizon once the deal is complete. Avaya, however, has not commented on its plans for Verizon.

By Patricia Resende

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