posted by: Mark Cortner
Last week, Nortel announced that it had entered into a “stalking horse” agreement with Avaya for Nortel’s enterprise solutions business unit for $475M. The stalking horse agreement essentially sets a minimum bid for the auction of the business unit and will be filed with the bankruptcy courts. The auction process allows other qualified bidders to submit higher or otherwise better offers over a 45 day period and then the bankruptcy courts in the United States and Canada will have final approval of the winning bid once the bidding process is complete.
So, at this point, Avaya has not “purchased” Nortel’s enterprise business unit but has rather committed to purchase the business for $475M pending competitive bids. What is the likelihood that Avaya will ultimately “win” Nortel’s enterprise business unit? The same process just recently played out with auction of Nortel’s CDMA and LTE wireless infrastructure businesses. Nokia Siemens Networks entered into a stalking horse agreement with Nortel for these assets in mid-June and today it was announced that Ericsson submitted the winning bid for these assets. The initial stalking horse agreement was for $650M and Ericsson’s winning bid was for $1.13B. The auction process increased the purchase price by roughly 75%.
I’m not sure Nortel’s enterprise business unit will achieve as high a valuation as the wireless infrastructure business. The stalking horse bid for the CDMA and LTE assets was approximately valued at 33% of 2008 revenues and the winning bid was just short of 60% of 2008 revenues. In contrast, Avaya’s stalking horse bid for Nortel’s enterprise business unit is currently valued at roughly 20% of 2008 revenues. Who are other likely potential bidders in the auction? Alcatel-Lucent and Siemens Enterprise Communications could be candidates. Both could benefit from Nortel’s installed base in North America, although I suspect that Nortel’s customers would be uneasy with either. Nortel expects the auction process to be very active; perhaps there are many others that will aggressively bid but I’m not convinced …
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