Avaya's Nortel Bid Goes Through

U.S. and Canadian courts approved Avaya’s purchase of portions of Nortel’s Enterprise Solutions business in North America, the Caribbean, Latin America, and Asia on September 16.

Avaya has separate agreements with Nortel for the acquisition of its Enterprise Solutions business in Europe, the Middle East, and Africa, and those deals are still subject to regulatory and court approvals in France and Israel. 

Under current agreements, Avaya will pay $900 million in cash and fund an additional pool of $15 million for an employee retention program. The agreements include the sale of substantially all of the assets of the Enterprise Solutions business globally, as well as the Nortel Government Solutions and DiamondWare units. The sale is expected to close by the end of this year.

Avaya entered into a “stalking-horse” agreement to purchase these assets from Nortel in July, more than six months after Nortel filed for bankruptcy. Several other companies, including Aspect Software and Siemens, were rumored to have been interested in Nortel’s Enterprise Solutions business, but in the end Avaya emerged as the preferred bidder. The bidding process officially closed September 14.

“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, in a statement September 16. “We believe the acquisition brings inherent value to both organizations’ customers, employees, and partners, and we look forward to its successful conclusion.” 

Joel Hackney, president of Nortel Enterprise Solutions, was equally enthusiastic. “This is fantastic news for our customers, as this will empower us to continue to deliver industry-leading solutions and services focused on unlocking the enterprise business potential enabled by unified communications,” he said in a statement. “It provides the capability to chart our future with laser-focus, enabling customers to compete in new ways with greater scale and resources. As we work through integration planning, it is business as usual, and we will continue to focus on supporting our installed base.”

Through deal close and beyond, Hackney promised to deliver on Nortel’s customer commitments and maintain current levels of service and support. “We will ensure our customers can fully leverage their existing Nortel investments as they benefit from the complementary capabilities of the Nortel and Avaya portfolio of products and services,” he said.

With the acquisition, Avaya now accounts for about 30 percent of the global contact center market, cements its position in the worldwide market for several years, and boosts its play in the midmarket, according to Ovum analysts Daniel Hong and Ian Jacobs.

Similarly, a Frost & Sullivan study, cited by The Wall Street Journal, indicates that the acquisition increases Avaya’s share of the market for enterprise phone equipment in North America from about 17 percent or 18 percent to 27 percent, leapfrogging Cisco Systems, which has about 21 percent of the market.

Both Hong and Jacobs argue, however, that Nortel has been stripped of many of its customers and dealers since it filed for Chapter 11 bankruptcy protection in January. Many competitors—Avaya included—have spent the past few months looking to lure Nortel’s channel customers away, and that could pose a challenge for Avaya moving forward.

Avaya also might struggle at first with the need to replace much of Nortel’s technology with its own product lineup to eliminate redundancies and overlaps.

But the International Nortel Networks Users Association (INNUA), a community of more than 4,000 members in 75 chapters around the world, expressed its full support for the acquisition. “This acquisition marks a positive, new chapter for INNUA and for Avaya,” said Victor Boehnert, the organization’s executive director, in a statement. “We are excited to begin working with Avaya, and are ready to turn the focus back on providing our members the great education, user-driven perspectives, and other services they have come to depend on.

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