The state of Avaya's Nortel bid

Now that bankruptcy courts have signed off on Nortel's plan to sell its enterprise division, all eyes turn to Avaya and other suitors to gauge where Nortel's assets might land and how much the once-mighty telecom company will get for them. Avaya's opening bid for Nortel's Enterprise Solutions Division of $475 million, announced July 20 [1], likely will be topped by another company, with reports [2] pointing to Siemens Networks as a probable bidder. Siemens Enterprise Communications, through a venture named Enterprise Networks Holdings, is compiling a counteroffer and has filed a limited objection to the Avaya bid in the U.S. Bankruptcy Court for the District of Delaware, according to a No Jitter article [3] by telecom consultant Alan Sulkin.

Nortel announced Q2 2009 results Monday, showing revenues of $465 million for the Enterprise Solutions division, making Avaya's bid only a fraction of the unit's likely yearly revenue. Will another firm see the unit and its customer base as more valuable than Avaya's low ball offer?

Cisco and Alcatel Lucent also remain in the mix, and statements made by Cisco CEO John Chambers about exploiting "market adjacencies [4]" may come to fruition with a bid by Cisco, which has shown repeatedly it will buy share in markets in which it competes.

Private equity firm MatlinPatterson, which owns $400 million in Nortel bonds, sought to buy the whole company, but resigned that was highly unlikely after Ericsson's successful buy of Nortel's wireless assets. The PE firm now is questioning anti-trust [5] implications of Avaya's bid, and developments around its complaints should be monitored closely.

And the other companies that aren't bidding for Nortel's assets outright are doing their best to poach customers during the transition period, which could affect the eventual valuation and counteroffers.

If another company successfully posts a higher bid by the 12 p.m. EST deadline on Sept. 4, Avaya will be awarded a $14.25 million break-up fee, per the terms of the "stalking horse" auction. Expect action around Nortel's lucrative, but sagging ES division to heat up as that deadline approaches. 

Related articles
Avaya bids $475M for Nortel Enterprise Solutions [1]
Avaya CEO's letter to Nortel Enterprise Solutions employees [6]
Competitors stalk Nortel VoIP assets [7]
Aastra chases Nortel enterprise customers [8]