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Let's Not Jump the Gun on Nortel-Avaya

Why is everyone acting as if the Avaya-Nortel acquisition is a done deal when there is still an active auction bidding process taking place? According to the Nortel press release, "Nortel entered into a 'stalking horse' asset and share sale agreement with Avaya for its North American, CALA and Asia Enterprise Solutions business, and an asset sale agreement with Avaya for the EMEA portion of its Enterprise Solutions business for US$475 million."I had to go to Wikipedia to find out what stalking horse means, but essentially a debtor can maximize the value of its assets as part of (or before) a bankruptcy court-approved auction process by offering bidding protections such as breakup fees to its best bidder before the auction to enhance the value of the offering for the bidder. For Nortel, this sets into play bidding procedures for an auction that allow other qualified bidders to submit higher or otherwise better offers, as required under Section 363 of the U.S. Bankruptcy Code. As Joel Hackney, President, Nortel Enterprise Solutions noted during an analyst call, there will be 45 days for auction activity, and anyone who's a credible bidder can put forward a better offer. It's important to note that "better offer" doesn't just mean higher price, but according to Nortel it means the total value of the offer, including the certainty of completing the transaction. So someone else can come forward with an offer that is better than the terms of the Avaya bid, but there has to be more to it than just a higher offer price.

Hackney stated that there will be other bidders, and we should expect the auction process to be very active and competitive. While yesterday's announcement doesn't tell us definitively who will be the winning bidder, it does say that there is now a defined timeline for when this will start wrapping up--with September 15 as the expected date for announcing the final result.

So all this really tells us is when, but not who.

The main benefit to Avaya, if it is indeed the eventual acquirer, is Nortel's channel. Avaya has clearly been making a move toward more indirect sales and needs to build up its channel. This is where Nortel shines, and gaining Nortel's channel partners will be a real asset. Whether or not Avaya will also gain Nortel's installed base is up in the air--obviously some customers will move forward with Avaya (or Norvaya), while some will jump ship, opening up opportunities for Cisco, Mitel, Aastra, Interactive Intelligence, and others that have been courting Nortel's customers.

Avaya (or the eventual acquirer) will also gain Diamondware, a small company that Nortel acquired, providing 3D spatial audio and other audio capabilities. While used internally with Nortel with Web.Alive, Diamondware has huge potential in both the UC world and with virtual world technology, as well as in other areas. Diamondware provides capabilities that enhance the collaboration experience, and can prove to be the "gem" of any Nortel acquisition.

Many questions remain, and won't be answered for some time: which Nortel products will the acquirer retain, and which will become part of the telephony garbage heap. And of course the Microsoft ICA relationship is a big question mark. Personally, I think that Avaya (assuming it's the winner) should move forward with Nortel's ICA relationship. It's clear that Microsoft is going to be a key voice or telephony player and will compete with the traditional telephony vendors, so it may make sense to work with them rather than against them and provide customers with the capabilities that OCS lacks.

My fellow analysts will be making predictions about what the Avaya announcement means for Nortel and its customers, but until we know for sure whether Avaya will actually be the acquirer, it's too soon to jump to conclusions about the future of Nortel. In the meantime, be sure to listen to the podcast from the UCStrategies team about the Nortel announcement and what we think it means for Nortel and the UC world.