Report: Stalking Horse Stampedes Toward Nortel's VoIP Biz

Nortel Networks Ltd. is reportedly inching closer to fetching a $800 million "stalking horse" bid for its VoIP business, and one analyst continues to view Sonus Networks Inc. (Nasdaq: SONS) as the likeliest front-runner. And the timing of all this comes from somebody who should be in the know: Samih Elhage, president of Nortel's Carrier VoIP and Applications Solutions unit. "We are very close to getting a stalking-horse bid, which will provide clarity on the situation," he told told Canada's Financial Post. Avian Securities LLC senior research analyst Catharine Trebnick is holding firm in her earlier prediction that Sonus is the lead candidate and is "aggressively pursuing" Nortel's VoIP assets. Others believed to be in the running include Nokia Networks , Ericsson AB (Nasdaq: ERIC), Huawei Technologies Co. Ltd. , and Alcatel-Lucent (NYSE: ALU). (See Sonus Looking at Nortel Assets, Cedar Point and Who's Dialing In for Nortel's VoIP Assets? ) In a note issued today, Trebnick suggests that Sonus's announcement this week of a planned 10 percent layoff may help to set the stage for a bid. Sonus expects to save as much as $10.3 million as a result of the new round of cuts, which are expected to be completed by the third quarter. (See Sonus Cuts Again.) "We believe SONS' latest round of North American layoffs may be attributed to [the vendor] seeking Nortel's VoIP assets in addition to SONS' relocation of organization functions such as R&D to India," she wrote. Still, Sonus may be biting off more than it can chew, she tells Light Reading this morning. "If Sonus gets [Nortel's] assets, it's damned if they do and damned if they don't," Trebnick says, noting that such an acquisition would give it some new technology and footprint, but could create a massive integration headache. "They're going to definitely need some help." But the scenario could change dramatically if NSN is successful in snaring Nortel's VoIP assets via an original stalking-horse bid, or through a better offer -- somewhere in the neighborhood of $1 billion -- that could emerge during a follow-up auction process. If NSN ends up the winner, Trebnick thinks they could end up dismantling the parts of those assets, perhaps creating an opportunity for Genband Inc. to come in later to grab the media gateway components at a fire-sale price. Genband bought NSN's media gateway product line last year, and, in doing so, became the exclusive provider of media gateways to NSN for a period of five years. (See Genband Gets a Gateway to NSN.) Nortel and Sonus officials weren't immediately available to comment on reports of an imminent bid for the bankrupt giant's VoIP division. More MEN speculation: A Juniper/NSN JV?
Trebnick also updated her view on the potential fate of Nortel's Metro Ethernet Networks (MEN) assets, suggesting a "likely" scenario in which NSN and Juniper Networks Inc. (NYSE: JNPR) swoop in as a joint venture. Others on her list of vendors that are at least interested in MEN include Ciena Corp. (NYSE: CIEN), Cisco Systems Inc. (Nasdaq: CSCO), Fujitsu Ltd. (Tokyo: 6702; London: FUJ; OTC: FJTSY), Huawei, Infinera Corp. (Nasdaq: INFN), and Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA), though some in this group have already all but taken themselves out of the running. (See Is Ericsson the Hope for Nortel's MEN?, Tellabs CEO: We Don't Dig MEN, and Who's Waving Their Wad at Nortel’s MEN?) She thinks Ericsson will likely stay out since it has already won the auction for Nortel's CDMA and Long Term Evolution (LTE) assets, and believes Infinera may not have the cash to win. Infinera, which ended the second quarter with $94.1 million in cash and cash equivalents, may also be preoccupied with some changes up top -- CEO Jagdeep Singh is to step down in January 2010, but will remain on as executive chairman. (See Infinera Changing CEOs, RIM Losing Fight for Nortel LTE Unit, Nortel Could Sell LTE Patents Separately, and Nortel Wireless Winner: It's Ericsson!) — Jeff Baumgartner, Site Editor, Cable Digital News