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Avaya Sells Networking Business to Extreme

Avaya has taken the next step in its move through the bankruptcy process, yesterday announcing that it has sold its data networking business. The Cliff Notes: For a transaction value of approximately $100 million, subject to adjustments, Extreme Networks has purchased the Avaya Networking business.

The sale, as I discussed in last week's post, "Analyzing the Avaya Path Through Bankruptcy," was anticipated. Avaya Networking has had negative EBITDA for three or more years, and moving that business to a purely networking-focused company is a good decision for the future potential of the Avaya wired, wireless, and fabric networking products and services, as Kevin Kennedy, Avaya CEO, noted in a prepared statement.

For customers using both the older as well as the new fabric networking products, Avaya Networking's sale to Extreme is great news. By selling the asset that was burning cash so early in the bankruptcy process, the potential of the creditors demanding significant cost reductions (read staff reductions) is dramatically reduced. This helps assure that any cost reductions will have minimal impact on the current networking business before its move to Extreme.

Clearly, Extreme will need to rationalize the Avaya technology, products, and team with its own, but I believe it will see significant value in the purchase. I also think that a rapid move to support the OpenFlow and open SDN capabilities in the fabric network will happen.

For the Avaya team working with the creditors to create a path through bankruptcy, taking the data business off the table is good news from two viewpoints. It reduces the challenges, and it enables the team to focus on the key elements of corporate structure and strategy for the business going forward.

However, the networking sale isn't anticipated to close until late June, as a public auction must be held before the asset can be sold to any party (Section 363 of the Bankruptcy Code). This sale date presents a challenge, as it essentially ensures that Avaya will remain in bankruptcy at least into July or August, even if a plan is defined quickly for the rest of the business.