Avaya to pay $915m for Nortel assets

The Silver Lake- and TPG-backed company won out over a joint venture between Siemens and The Gores Group, despite protests from creditors including MatlinPatterson.

Silver Lake- and TPG-backed Avaya will acquire Nortel Networks’ Enterprise Solutions business, as well as shares of Nortel Government Solutions and DiamondWare, for $900 million in cash, with an additional $15 million for an employee retention programme.

Avaya’s bid won a long auction process that was part of Nortel’s larger efforts to sell its assets piecemeal after falling into bankruptcy in January. Nortel, once North America’s largest telephone equipment maker, was crippled by increased pressure from competitors and the global financial meltdown.

In July, Avaya was named the stalking horse bidder with a $475 million bid. A competing bid was later submitted by a joint venture between Siemens and US private equity fund The Gores Group.

The Siemens-Gores JV complained at the time that the sales process gave Avaya an unfair advantage. Distressed specialist MatlinPatterson also argued that the sales process was unfair to creditors and a sale to Avaya could result in antitrust or other regulatory issues.

MatlinPatterson is one Nortel’s largest creditors, holding about $400 million of the company’s debt. In July the distressed investment specialist submitted a $725 million bid for Nortel's wireless assets, a different part of the business than what Avaya had been bidding on. Its bid is in direct competition with the $650 million stalking horse bid submitted by Nokia Siemens earlier this year for the businesses.

The Avaya deal faces opposition from Verizon Communications, which last Wednesday filed a motion to schedule an emergency hearing, on the grounds that the proposed merger would put at risk “communications networks critical to the operation of the federal government and the defence, safety, health and security of the American public”.

Verizon purchased equipment from Nortel that is now used by many branches of the US government and military. Because the terms of the sale specify that Nortel will drop servicing contracts this equipment, Verizon claimed that the equipment would eventually fall into disrepair.

The deal is expected to close late in the fourth quarter of 2009. Nortel must first seek Canadian and US court approvals at a joint hearing scheduled for Tuesday.