Avaya Inc. outbid Siemens Enterprise Communications (SI) to win Nortel Networks Corp.'s (OTC:NRTLQ) money-losing division which makes phone systems for businesses for $900 million, plus an additional $15 million for an employee-retention program.
Since the announcement of the deal, Cisco's (CSCO) stock has fallen by $0.21 or 0.91% to $22.88 and Verizon Communications Inc's (NYSE:VZ) stock has fallen by $0.2 or 0.64% to $31.06.
The acquisition will make Avaya, leader, in the North American unified communications (UC) solution market by raising the company's market share from about 17.5% to 27%. Cisco will be relegated to second spot with its current market share of 21%. Moreover, the transaction gives Avaya ready access to the much needed Fortune 100 corporate customers. Avaya will also be able to expand its distribution capability through Nortel's network of reseller partners.
"It will also prevent a competitor like Siemens from getting stronger," Ronald Gruia, a principal telecom analyst at consulting firm Frost & Sullivan, said ahead of the auction. Unlike its operations in Europe, Siemens Enterprises North American business is relatively small.
The transaction is conditional on approval from the bankruptcy courts in both Canada and the U.S. A joint hearing on the transaction is scheduled for Tuesday. Courts in France and Israel also need to approve the transaction.
Objections to the deal
On Thursday, Verizon Communications Inc. (VZ) filed a petition in court saying that the sale of Nortel's enterprise business to Avaya could jeopardize U.S. law enforcement, anti-terrorism and national defense interests because Avaya wouldn't take on Verizon's support contracts. In response, Avaya said it was in discussions with Verizon to try to negotiate arrangements to support the Verizon contracts.
Sotel Systems, a closely held telecom-equipment reseller based in St. Louis, warned against Avaya's bid succeeding because it and Cisco would create a duopoly with a combined market share exceeding the trigger level of 43% in phone systems for call centers.
