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Avaya/Nortel Follow-up (With a Little Gloating)

Anybody remember this forecast from more than three months ago (June 9,2009)?

A bidding war between Avaya (Silver Lake/TPG) and Siemens (Gores Group) will help elevate the final purchase price, but $1 billion could be the ceiling based on all the factors.

Yes, it was from my No Jitter blog post discussing the market valuation of Nortel ES for purposes of the planned bankruptcy auction. My prediction was not 100% accurate, but pretty darn close, at a time most industry pundits doubted the price would be anywhere near the one billion dollar mark. The two predicted bidders, though, were spot on.

If Avaya can keep transition costs down, and do it quickly, the Nortel buy could be a bargain when the merged operations are taken public, again, as Silver Lake and TPG plan to do sometime in the not so distant future (especially after the economy fully recovers). The new larger entity will bring a better price than Avaya by itself.

The problem, though, is will Silver Lake and TPG ever recover their original purchase cost of about $9 billion for Avaya and Nortel? This I believe will be difficult, because Avaya's acquisition of Nortel may help improve the new entity's market position, but with the strong possibility of Microsoft replicating Cisco's success and the former continuing to march forward it will be difficult to keep the existing customer base intact and roll up sufficient profits for the private equity firms not to write off a few billion dollars on their investments. But stranger things have happened.

I would like to know after the smoke clears and Nortel ES is safely merged within the bosom of Avaya, how the enlarged company plans to fight off the software and data networking giants from market dominance positions. And what about a Google market entry (something that cannot be discounted just yet)?

Stay tuned boys and girls to this same bat channel, same bat time, to see if the dynamic duo of Avaya and Nortel can fend off the dastardly attacks of their two arch villains.