Avaya to pay $900M for Nortel enterprise unit

Avaya Inc. has won an auction for Nortel Networks Corp.'s enterprise solutions business, and will pay $900 million US for the unit.

In addition, Basking Ridge, N.J.-based Avaya will pay an additional $15 million for an employee retention program, the companies said Monday.

The companies will seek Canadian and U.S. court approvals for the sale at a joint hearing on Tuesday. If that is granted the sale is expected to close late in the fourth quarter of 2009.

"This is fantastic news for our customers," Nortel Enterprise Solutions president Joel Hackney 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."

The enterprise unit supplies landline phone systems and other communications equipment to businesses and large organizations around the world. The division made $2.4 billion in revenues in 2008.

Avaya had submitted a $475-million stalking horse bid for the enterprise division in July. Avaya has been a rival of Nortel's in the enterprise space.

Nortel has been operating under court protection from its creditors since January. It had originally intended to reorganize as a smaller independent business, but more recently has been selling its major assets.

The next major asset on the block is Nortel's prized Metro Ethernet Networks business, which some analysts say could fetch up to $1.5 billion. A date hasn't been set for that auction or its submission process.

The company's ethernet division is considered one of its strongest assets because it includes the rights to technology that enhances the speed and capacity of current fibre optic networks by a factor of as much as 10.

Faster connections are highly lucrative in the current market as more people watch video and transfer large files online.

National security risk

LM Ericsson agreed to pay $1.13-billion for Nortel's wireless assets in an auction in July.

Verizon Communications Inc. had objected the Avaya's participation in the enterprise division auction.

The U.S. broadband and telecommunications company had said it believes that if Avaya Inc. wins the auction, it could risk U.S. national security.

In documents filed with a Delaware court on Thursday, Verizon said that Avaya refuses to maintain contracts for equipment Verizon bought from Nortel that's in use by the U.S. federal government.

Verizon told the court in its filings that Nortel first notified them on Sept. 2 that Avaya wouldn't handle the contracts, if it won the auction. The company believes that Nortel won't have the capabilities to handle the contracts itself once the enterprise sale went through.

"As we work through integration planning, it is business as usual, and we will continue to focus on supporting our installed base," Hackney said.