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Nortel set to sell key unit Add to ...

TELECOM REPORTER

Nortel Networks Corp. was close to a deal last night to sell one of its key businesses to rival Avaya Inc.

The sale of the enterprise unit to Avaya would mean that over the course of a single week the 127-year-old Canadian tech icon had agreed to sell off assets responsible for nearly half its revenue, following a deal with Nokia Siemens Networks for its wireless assets announced June 19.

Nortel and Avaya cleared one of the last major hurdles on Thursday and the two were near to signing the paperwork on a deal, worth as much as $500-million (U.S.), a source familiar with the situation said.

The two companies had alerted some of their major customers and resellers during the week that a possible deal was in the works. Spokespeople from both Nortel and Avaya said their firms do not comment on "rumours or speculation."

Nortel's enterprise unit makes network equipment for businesses and other organizations and competes with Avaya, Cisco Systems Inc. and Siemens Enterprise Communications Inc.

The unit was responsible for 20 per cent of Nortel's business last year.

The recession, coupled with Nortel's decision to enter creditor protection in January, has hammered its enterprise sales.

Revenue from the unit fell 41 per cent in the first quarter from a year earlier, to $395-million.

Avaya's decision to go after Nortel's enterprise assets marks a dramatic turnaround of fortunes. Just two years ago, the Basking Ridge, N.J.-based equipment maker faced its own financial crisis and Nortel emerged as a potential buyer.

Those discussions reportedly fell through because the parties could not agree on price and terms of payment; Avaya was instead purchased by private equity firms Silver Lake Partners and TPG Inc. for $8.2-billion.

Avaya has since emerged as one of the few profitable players left in the industry. Last December, senior executives said they were winning new business at the expense of Nortel because of their competitor's financial troubles.

The turn of events is particularly poignant for Mike Zafirovski, Nortel's chief executive officer, who had hoped to expand business by scoring a major acquisition such as Avaya, but now finds himself on the other side of a consolidating market.

Nortel's decision to sell its wireless assets to Nokia Siemens for $650-million will preserve at least 2,500 of 4,100 jobs in Canada and the United States, the companies said.

A rival bid could emerge over the next three weeks, but analysts say one is unlikely.

Nortel's creditors, meanwhile, filed a motion in U.S. bankruptcy court yesterday, objecting to the deal with Nokia Siemens.

The main group representing creditors complained that the terms of the bid could stifle other offers because the rules tipped the process in Nokia Siemens' favour.

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