Enterprise Seems Nortel's Odd Man OutEnterprise Seems Nortel's Odd Man Out

The more time that passes without Nortel Enterprise's situation being resolved, the less attractive the entity becomes.

This morning, the Ottawa Citizen runs down the potential competitors who are likely to bid against Nokia Siemens Networks for Nortel's wireless carrier assets. What's interesting is that all three of the groups looking to challenge NSN are private equity-backed; no other vendor companies are playing.The other major revelation in this article is that one of the two private groups headed by an ex-Nortel leader is explicitly saying they won't make the Enterprise division part of their bid, while the other two private groups appear to be bidding for the whole of Nortel. Still, as Allan pointed out last week, any private equity buyer that did succeed in landing the whole of Nortel would probably move rather quickly to sell off the Enterprise division.

This is less a reflection on Enterprise as such than simply an acknowledgement that it's got a fundamentally different customer set and technology challenge than the carrier units of Nortel. It's really the same factor that drove Lucent to spin off Avaya and Siemens AG to spin off Siemens Enterprise when it combined its carrier unit with Nokia's.

The Ottawa Citizen article (and comments) also make clear the continuing strain of national pride and economic concern at play in the whole Nortel saga. Besides the U.S.-based private equity firm MatlinPatterson, the other two likely bidders are headed by former Nortel executives, who seem to be pushing the "keep Nortel Canadian" mantra--at least when it comes to the carrier units.

So what's going on with the purchase of Enterprise? There's been little speculation and even less news lately. But it seems likely that the Enterprise division's value is sinking as it bleeds customers and channel partners, suggesting that, like the wireless units, someone might be in a position to scoop it up at a bargain price--at this point, the $500 million that Avaya was reportedly set to pay is looking pretty generous.

However, as we're seeing with the wireless units sale, once a bargain price is set with a "stalking horse" bidder, others tend to come out of the woodwork, unwilling to let the business unit go for such a steal. Here are some potential scenarios:

* NSN wins the auction for Nortel's wireless business units but has to up its winning bid from the $650 million it agreed to pay as the stalking horse. In this scenario, Nortel Enterprise is the piece of low-hanging fruit that could be next to go through a similar process of low stalking horse bid/auction price run-up. This might be the best course for Nortel customers and the eventual buyer, since it likely would be the quickest route to a resolution.

* One of the private equity firms submits a winning auction bid for the entire company. This would probably not be so good, because, per Allan's post, the Enterprise division would wind up getting sold anyway, with valuable months (or more) potentially lost to the black hole of uncertainty that has done so much to drain Nortel Enterprise of customers and channel partners already.

* The winner of the upcoming auction purchases everything except Nortel Enterprise. This might get Enterprise into new owners' hands quicker than the second scenario, but only one of the three private equity bidders is talking about doing it this way.

The more time that passes without Nortel Enterprise's situation being resolved, the less attractive the entity becomes. The biggest question may no longer be, Who will acquire Nortel Enterprise? but rather, When will someone, anyone, buy it?The more time that passes without Nortel Enterprise's situation being resolved, the less attractive the entity becomes.