Industry Canada approves Avaya-Nortel sale

Greg Meckbach

15 years ago

Industry Canada has approved the takeover by Avaya Inc. of the enterprise assets of Nortel Networks Corp., which is operating under bankruptcy protection.

Basking Ridge, N.J.-based Avaya announced Friday the federal government completed a review required under the Investment Canada Act. Avaya won an auction in September when it agreed to pay US$915 million for the Nortel units that make switches, routers, firewalls, virtual private networking (VPNs), unified communications, private branch exchanges (PBXs), phones and key systems.

Nortel, which has lost money nearly every year except 1998, filed for protection from creditors last January. It has sold one wireless unit – which makes code division multiple access base stations for cellular carriers – to Telefonaktiebolaget LM Ericsson of Sweden for US$1.13 billion. That deal resulted in Ericsson hiring more than 900 former Nortel workers in Canada.

Earlier this month, Ciena Corp. won an auction to buy Nortel’s optical networking and carrier Ethernet units for US$769 million. That deal is still subject to regulatory approval.

On Friday Avaya said it expects the deal to buy the enterprise assets will close within a month.

The US$915 million Avaya is paying is comprised of US$900 million in cash to Avaya and US$15 million in “employee retention.”

Avaya, which is privately held by Silver Lake Partners, was born as a separate firm in 2000, when Lucent Technologies Inc. decided to spin off its enterprise unit. Lucent was formerly known at AT&T Bell Labs and merged with Alcatel SA of France in 2006.

Last year, Avaya hired Charlie Giancarlo, a former executive with Cisco Systems Inc., as its chief executive officer. He was replaced by Kevin Kennedy.

Earlier this year Avaya launched Aura, a Linux server designed to function as a communications server in a multi-vendor environment, using session initiation protocol (SIP).

Last month, Nortel agreed to sell its Global System for Mobile Communications (GSM) products to Ericsson and Kapsch AG. That deal, valued at US$103 million, is not expected to affect more than 10 Canadian Nortel workers.

Nortel was started in 1895 as the manufacturing unit of Bell Canada Enterprises (BCE) Inc. It was spun off as a separate company, known as Northern Electric and then Northern Telecom.

It acquired Bay Networks for US$9 billion in 1998, giving Nortel data networking products. Shortly therafter, it was renamed Nortel Networks.

Anyone who had bought Nortel stock in January, 1996 would have made $17 for every dollar invested had they sold it in August, 2000, when Nortel dominated the Toronto Stock Exchange 300 index. At the time, its CEO was John Roth, who was replaced by Frank Dunn in October, 2000. The company quickly fell out of favour with investors and it lost US$27.3 billion in 2001.

Dunn was dismissed with cause by the board of directors in 2004 and faces criminal charges in Canada – including fraud affecting public market – which have not been proven in court. Dunn’s replacement, retired U.S. Navy Admiral Bill Owens, was hired to clean up the books and was replaced in 2005 by Mike Zafirovski, a former executive with Motorola Inc. Zafirovski left the company last August.

During its heyday, Nortel employed about 100,000.

Avaya has not announced its product integration plans with Nortel, though analysts have noted both companies make IP phones and unified communications. However, Avaya left the switching business when it stopped supporting its Cajun products and nearly two years ago endorsed Extreme Networks Inc.’s BlackDiamond and Summit switches.