Nortel to Divest Enterprise Voice?Nortel to Divest Enterprise Voice?
The online version of the Wall Street Journal is reporting that Avaya and Siemens are in talks to buy the Enterprise division of bankrupt Nortel.
March 12, 2009
The online version of the Wall Street Journal is reporting that Avaya and Siemens are in talks to buy the Enterprise division of bankrupt Nortel.
The online version of the Wall Street Journal is reporting that Avaya and Siemens are in talks to buy the enterprise voice division of bankrupt Nortel.Relatively little detail is offered in the report, which says that Nortel's wireless equipment and enterprise divisions are both on the block. And here's an interesting nugget:
Nortel, which filed for bankruptcy protection in January, has been surprised by the high degree of interest in the two businesses, the Journal reported. The businesses posted a combined $6.7 billion in sales last year, according to the report.
The Journal article (subscription required) states that Cisco looked at the enterprise unit but passed.
Should Nortel have been surprised at the level of interest? When it comes to enterprise voice, which is what we deal with here on No Jitter, I'll confess I am surprised, in some ways. Not that there isn't great technology and people and a strong installed based there. But to the extent that this installed base represents an extensive, mature product line that would have to be integrated with another buyer's product line, it could represent a burden as well as an advantage. And it's not clear that the way to win in the next generation of communications is by consolidating with a peer company in current-generation communications.
On the other hand, Nortel still owns some 15% of a still-pretty-diffuse enterprise voice market, a hefty chunk in spite of everything. If Avaya bought Nortel enterprise voice, it'd double its market share and regain the top spot in North America, surpassing Cisco. And if Siemens bought Nortel, it'd quadruple its market share.
Some things I'll be watching for as this story unfolds:
* Price--Nortel's first foray into selling off assets while in Chapter 11 had to have been a disappointment. Nortel agreed to sell its Layer 4-7 enterprise data business to Radvision for just $17 million, far below what most observers believed the unit would fetch, and about one-third the division's $50 million annual revenues.
If you applied that same formula to the enterprise voice division(leave enterprise data out of it), you'd have a division with $1.64 billion annual revenues selling for about $558 million. That seems unlikely to happen, ultimately. For one thing, Nortel's enterprise voice business is inherently more valuable than its Layer 4-7 data business. Furthermore,if it's true that multiple parties are interested in bidding, that will drive the price up. There hasn't been any reports of likely follow-on to the "stalking horse" sale of the Layer 4-7 division to Radvision--a "stalking horse" buyer can be outbid through an auction process--but it'd be interesting to see a bidding war start for the Enterprise voice assets.
* The Reported Buyers--The Journal article singled out Avaya and Siemens as likely buyers. Siemens seems like the better fit: They'd be acquiring the hefty North American installed base that they currently lack. Avaya, on the other hand, is already strong in North America, and its private equity buyers, Silver Lake Partners and TPG, are already facing the challenge of getting a return on their $8 billion purchase of Avaya.
Also noteworthy is that the two named buyers are both private equity-owned. Of course, the public companies in enterprise communications are either unlikely to jump in (Microsoft, Cisco) or too small to be a player (e.g., ShoreTel).The online version of the Wall Street Journal is reporting that Avaya and Siemens are in talks to buy the Enterprise division of bankrupt Nortel.
