Avaya reportedly offering $500M for Nortel enterprise biz

Nortel is reportedly close to selling its enterprise division to Avaya for $500 million.

According to an article in Canada’s Globe and Mail this week, Avaya has emerged as the “favored bidder” for Nortel’s Enterprise Solutions group, which develops and markets the company’s switches, routers and telephony gear to businesses. Nortel is looking to sell off most or all of its assets, having apparently failed in a bid to emerge from bankruptcy as a viable competitor in data networking and telecom.

[ Read about Nortel's relationship with Microsoft. ]

Nokia Siemens just acquired Nortel’s CDMA and LTE wireless businesses for $650 million. Nortel has said it is in advanced negotiations to sell other company assets.

Nortel's enterprise business has been declining rapidly. The unit generated about $395 million in sales in the first quarter of 2009, down 41% from a year ago, 34% from Q4, 2008, and less than half of the $806 million recorded for the fourth quarter of 2006.

“If executed, Avaya will become a larger player in the enterprise market - a top 4 player in Layer 2-3 Ethernet switching and the largest VoIP player with roughly 25% market share,” states Oppenheimer & Co. analyst Ittai Kidron in a bulletin on the reported Avaya bid. “This could either push privately held Avaya to continue to acquire smaller players to round out its enterprise portfolio and further consolidate market share or position itself as a more attractive acquisition target.”

Cisco and Juniper are likely to aggressively poach Nortel’s switching customers, Kidron states, and Avaya’s partnerships with Juniper and Extreme Networks may be impacted as well.

If Avaya pulls out, Siemens Enterprise Communications could emerge as a buyer for Nortel’s enterprise group, the Globe and Mail report states. Nortel has also drawn the interest of nine companies for its Metro Ethernet business, according to the report.

Nortel filed for bankruptcy early this year as its attempt to recover from a 2004 accounting scandal and a shortfall in demand took an enormous financial toll on the company. That, coupled with the overall global economic downturn, forced the company to ultimately break it self up, analysts say.

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