Sept. 14 (Bloomberg) -- Avaya Inc., the U.S. maker of corporate phone systems, agreed to buy Nortel Networks Corp.’s enterprise-telecommunications unit and other assets, winning an auction for the business with a bid of $915 million.

Avaya will pay $900 million in cash and $15 million for an employee-retention program, Toronto-based Nortel said today in a statement. Avaya, based in Basking Ridge, New Jersey, had made an opening, pre-auction bid of $475 million for the unit, which makes phone equipment and networks for companies.

Nortel, which filed for bankruptcy protection in January, is selling off its main businesses after deciding that was a better option for creditors than trying to reorganize the company and keep it intact. Avaya, which competes against Cisco Systems Inc., will boost its share of the corporate phone-gear market, said Henry Dewing, an analyst at Forrester Research Inc.

Avaya paid a “reasonable” price for the unit and won’t have “great difficulty in making this a profitable acquisition,” said Boston-based Dewing.

Sales at Nortel’s enterprise unit fell 28 percent to $465 million in the second quarter. Avaya went private in 2007 through a takeover by buyout firms Silver Lake and TPG Inc. and doesn’t publish financial results.

As part of the transaction, Nortel is also selling shares of its government solutions and DiamondWare voice technology businesses. Canadian and U.S. court approvals for the sale will be sought at a joint hearing tomorrow, it said.

No Delay Expected

Nortel sought protection from creditors after losing $5.8 billion last year amid a slump in demand for its equipment. Ericsson AB, the world’s largest maker of wireless networks, won an auction for Nortel’s wireless unit in July, agreeing to pay $1.13 billion after six rounds of bidding. That offer trumped an offer of $650 million from Nokia Siemens Networks.

Joel Hackney, the enterprise unit’s president, said he expects the acquisition by Avaya to close this year. He said he doesn’t foresee a related dispute between Avaya and Verizon Communications Inc. delaying the deal or court approval.

Verizon said before the auction it intended to object if Avaya won because Avaya may terminate contracts Verizon considers essential to U.S. national security. Avaya plans to fulfill the contract that is the subject of Verizon’s complaint, Lynn Newman, a spokeswoman for Avaya, said in an e-mail. She declined to comment further on the negotiations with Verizon.

Hackney said there were two bidders for the Nortel business. He declined to name the other party. Avaya will retain at least 75 percent of the employees at Nortel’s enterprise unit, he said.

“We had a set of customers that didn’t leave but pushed the pause button, and this provides a level of certainty for those customers,” Hackney said.

To contact the reporter on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net

Last Updated: September 14, 2009 14:50 EDT