Networking specialist Avaya has boosted its ability to challenge Cisco ( CSCO) with its $900 million acquisition of Nortel's ( NT) enterprise solutions business but now faces the challenge of integrating the unit as quickly as possible. Avaya had launched a $475 million " stalking horse" bid for the enterprise assets in July and subsequently fought off Siemens Enterprise Communications in a court-approved auction. The deal also marks the latest chapter in the demise of Canadian telecom giant Nortel, which entered Chapter 11 earlier this year. "Although anti-climatic, it establishes that Avaya will be the leader in business voice and that the market is further consolidating, leaving two big vendors in the tops spots, Cisco and Avaya," wrote Vanessa Alvarez, an analyst at Frost & Sullivan, in an email to TheStreet.com. Avaya, a former public company taken private by two private equity firms two years ago, is now mounting a major challenge to Cisco's enterprise business. Nortel's corporate customers include 80 of the Fortune 100, according to The Wall Street Journal, which says that Avaya's market share will now surpass Cisco's in North America. The deal is also expected to make Avaya itself more attractive to potential buyers. Alvarez, however, warned that the Basking Ridge, N.J.-based company has a big job on its hands swallowing the Nortel unit, which makes phone systems for businesses. "This market evolves quickly and it remains to be seen if Avaya can quickly integrate Nortel's business and successfully capture the potential customer growth opportunity that Nortel offers to them," she wrote. "We have seen many acquisitions go awry, so only time will tell."
Verizon ( VZ), one of Nortel's biggest customers, recently attempted to derail the Avaya acquisition in a court challenge, citing a potential risk to U.S. national security. The telecom giant uses Nortel gear to provide a number of U.S. government networks, although Avaya said last week that it is engaged in talks with Verizon to discuss its support concerns. In addition to the $900 million price tag, Avaya has allocated $15 million for retaining Nortel employees. Nortel has also promised that customers will not be affected by the acquisition. "As we work through integration planning, it is business as usual, and we will continue to focus on supporting our installed base," said Joel Hackney, Nortel's president of enterprise solutions, in a statement released Monday. "Through deal close and beyond, we will deliver on our stated customer commitments and maintain high levels of service and support." Chuck Saffell, CEO of Nortel's government solutions, also sought to allay any federal support fears. "The companies' strengths in the information technologies sector of the U.S. Federal Government are remarkably complementary," he said. "Our combined product offerings, as well as our strong professional services business and solutions approach provide a win-win for both our government customers and our business." In its statement, Nortel also confirmed that Canadian and U.S. court approval for the sale will be sought at a joint hearing Tuesday. The transaction is expected to close in the fourth quarter of this year. Nokia Siemens Networks, a joint venture between Nokia ( NOK) and Siemens ( SI), recently agreed to buy part of Nortel's wireless business for $650 million, and Ericsson ( ERIC) bought its main wireless networking division for $1.3 billion. Nortel's metro Ethernet business is now the next piece of the company on the block.