Is Nortel's Avaya Loss Actually A Win?

After much speculation and excitement about Nortel’s (NT) interest in buying Avaya (AV), the the winners of the Avaya sweepstakes are two private equity firms, TPG Capital and Silver Lake, which agreed to pay a cool $8.2-billion, or $17.50 a share.

In many respects, this could be considered a win for Nortel as well because the company can continue to focus on fixing itself/restructuring without the distractions of having to integrate a $5-billion a year business. At the same time, Avaya did not end up in the hands of a competitor such as Cisco (CSCO).

In fact, you could argue Avaya going to a private equity investor is a great move for Nortel because TPG and Silver Lake will probably start to slash Avaya’s operating expenses to increase cash flow so they can finance the deal. For Nortel watchers, the interesting thing is Nortel’s apparent interest in Avaya.

Does this mean Nortel is ready, willing and able to make a multi-billion dollar acquisition? If so, what other targets could be on its strategic wish list?

Update: Now that Nortel has missed out on Avaya, analysts are chiming in that it’s good news. RBC Capital Markets’ Mark Sue said even “if it were financially possible, an acquisition of Avaya by Nortel would likely have been messy, fraught with integration issues”, while UBS’ Nikos Theosopoulos said it would have been difficult for a combined Nortel-Avaya (Noraya) to find synergies/cost-savings in areas such as product development and supply chain. (Hat tip to Hat tip to Telephony Online)

Comments

[Marshall:]

Nortel needs to acquire a strong reseller who will bolster their weak and nonexesistent marketing.

2007 Jun 06 10:28 AM