Nortel: Bidders, Please Stand Up

On July 20, bankrupt telecom gearmaker Nortel announced that it will sell its enterprise solutions business to Avaya for $475 million. But will the deal actually go through?

Nortel CEO Mike Zafirovski calls Avaya’s July 20 bid for his company’s enterprise solutions unit “a good starting point,” and for good reasons.

While Avaya has bid $475 million for the business, other bidders could yet jockey for the unit. If they do, Zafirovski tells he expects an auction to determine winners some time in September. So far, every one of Nortel’s five businesses has attracted three to seven potential suitors, he says. How many of those actually place bids remains to be seen. Investors and creditors may get a sense of the actual interest on July 21, when potential buyers are invited to bid for another Nortel asset, comprising several wireless gear product lines.

Back in June, Nokia Siemens Networks agreed to purchase several wireless equipment business lines for a song. All counterbids must be submitted by July 21, and if there are any counterbids, the wireless businesses will go up for auction on July 24, when a bankruptcy judge must decide on the winners.

Avaya, whose bid must go through a similar process, must be watching that auction closely, and here’s why: A few weeks ago, private equity firm MatlinPatterson, which owns about 10% of Nortel’s debt, confirmed its plans to acquire some of Nortel’s assets, including the wireless businesses. “We expect other bidders, but there are no guarantees,” Zafirovski says.

A source tell that the private equity firm is planning to up the amount offered by Nokia Siemens. And if MatlinPatterson wins this week’s bidding war, it may also bid for other Nortel business units, the source says. MatlinPatterson is looking to partner up with an existing telecom industry player, such as Nokia Siemens, to buy the bulk of Nortel’s assets. “We would not be surprised if the same company bids for multiple businesses,” Zafirovski says.

The Avaya bid complicates things for MatlinPatterson. Whereas, until today, the firm only had to outbid Nokia Siemens, now it has to offer more money than Avaya, too. That said, both Nokia Siemens’s and Avaya’s bids are quite low, amounting to about a third or less of the respective divisions’ annual sales.

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