U.S. telecom equipment maker Avaya Inc has emerged as the successful bidder at a bankruptcy auction for the Nortel Networks Corp unit that builds corporate networks, and will pay $900 million for the business.
Avaya will also provide $15 million for an employee retention program, the companies said in announcing the deal Monday.
Our successful bid brings us closer to adding Nortel and its complementary channel, portfolio, research and development, and global presence to Avaya, Avaya Chief Executive Kevin Kennedy said in a statement.
We believe the acquisition brings inherent value to both organizations' customers, employees and partners, and we look forward to its successful conclusion, Kennedy said.
Avaya's bid for the Nortel unit was considered a stalking horse offer, which meant it set the floor for any other bids. That offer was $475 million. Nortel said additional bids had come in, making it likely Avaya had to sweeten its bid to win the auction.
That's a pretty good price, DSAM Consulting analyst Duncan Stewart said of Avaya's ultimate offer. My best guess would have been $700 million or $800 million.
Nortel, once North America's biggest maker of telecom equipment, filed for bankruptcy protection in January, blaming the economic crisis for derailing its turnaround efforts. It later decided it could generate more value for creditors by selling off its operations in pieces rather than trying to restructure itself into a viable business.
Nortel's enterprise business has suffered because of the weak economy and also because of its bankruptcy protection filing, which spooked customers.
The Toronto-based company reported last month that the enterprise unit's revenue in the second quarter dropped 28 percent from a year earlier to $465 million.
Stewart said Avaya may be betting that customer fears will be allayed by the acquisition and that at least some of the drop in sales will snap back.
Last week, U.S. telecom company Verizon Communications said it was ready to oppose the sale to Avaya, citing public safety and security concerns.
Avaya and Verizon had been in talks to resolve Verizon's concerns about its contracts with Nortel. Verizon had said it would oppose the sale to Avaya if its existing contracts were not taken up and serviced by Avaya.
Joel Hackney, president of Nortel's enterprise unit, said it would be business as usual as Avaya integrates the operations.
The sale is subject to court approval in the United States, Canada, France and Israel, as well as other regulatory approvals.
Nortel expects the deal to close late in the fourth quarter.
(Reporting by Andrea Hopkins and Wojtek Dabrowski; additional reporting by R. Manikandan in Bangalore; editing by John Wallace and Rob Wilson)