U.S. and Canadian judges said on Wednesday approved Nortel Networks Corp's sale of its enterprise business to Avaya Inc for about $900 million, part of the liquidation of the bankrupt telecoms company.
Once North America's largest provider of communications equipment, Nortel has decided that shedding businesses, rather than reorganizing, is the best way to repay creditors.
The enterprise business builds networks and voicemail systems for companies and government agencies and was sold during a 54-hour auction over the weekend. Avaya outbid a joint venture that included Siemens AG of Germany.
The sale was approved during simultaneous hearings in Delaware and Toronto that were joined by a video conference.
Nortel overcame the biggest threat to approval for the sale when a U.S. judge overruled the objection from Verizon Communications Inc.
Nortel's enterprise business sells equipment to Verizon, which resells it as part of its own phone systems offerings. Verizon depends on the enterprise business for maintenance and spare parts and it wanted Avaya to commit to keeping current terms.
Verizon argued that the sale put public health and national security at risk because Avaya [AVXX.UL] could drop support contracts supporting Verizon systems, including those at hospitals and military facilities.
Avaya has no reason not to want to do business with Verizon. In fact, it does business with Verizon, said Mark Bane, an attorney with Ropes and Gray, which represents Avaya.
Nortel said it was unreasonable to delay the sale approval until Avaya reviewed all 25,000 enterprise contracts, particularly as customers have been drifting away amid the uncertainty of bankruptcy.
Sales at the unit fell 28 percent in the second quarter to $465 million, the first full three-month period after Nortel sought court protection from creditors.
Nortel also countered that the objection was largely an issue of money and said that Verizon was attempting to prevent Avaya from renegotiating supply contracts on less favorable terms.
Judge Kevin Gross of the U.S. Bankruptcy Court for the District of Delaware agreed. I'm confident that to a large extent it's an economic issue, he said of Verizon's objection.
Gross also ordered the Internal Revenue Service to provide documents to explain its claim that Nortel owes it $3 billion in taxes. Those claims could in part be taken against Nortel's subsidiaries and could threaten any planned sales.
Depending on the outcome of the tax claim, Avaya's final bid of $900 million in cash and a $15 million pension payment could be negotiated lower, according to James Bromley, an attorney with Cleary Gottlieb Steen & Hamilton LLP, which represents Nortel.
The money will eventually go toward repaying creditors.
The sale is expected to close later in the year, subject to regulatory approvals.
The case is In re: Nortel Networks Inc, U.S. Bankruptcy Court for the District of Delaware, No. 09-10138.