Industry insiders say that Cisco Systems Inc.'s (Nasdaq: CSCO) rumored $425 million play for Airespace Inc. may be an effort to fan the flames of a bidding war between the networking giant and the switch startup's OEM partners, in particular Nortel Networks Ltd. (NYSE/Toronto: NT).

Airespace has "definitely put itself up for sale," a source tells Unstrung. "Possible bidders are their current OEMs and Cisco. The Cisco rumor may be a ploy to escalate a bidding war." (See Cisco Buying Airespace?)

Industry experts note that this would not be the first time that interested parties have tried to provoke a bidding war in a market dominated by an 800-pound marmot.

"It's certainly a possibility," says Farpoint Group analyst Craig Mathias, although he still thinks that Cisco will snap up the startup.

"In the end, I don't think it will affect the outcome," he says.

A Nortel spokesperson refused to comment. Neither Airespace nor Cisco will comment on the takeover talk.

Nortel is one of Airespace's major OEM partners: Some say that something like 70 to 80 percent of Airespace's sales come from the Nortel deal (see Synergy: Switches Sizzle ).

Another source notes that part of the terms of the original OEM deal between the two was that Nortel had right of first refusal if Airespace decided to sell up (see Synergy: Switches Sizzle ).

But that may now be a moot point, since most agree that Nortel would not be able to compete with Cisco in a such a high-stakes game. Especially not in light of the fact that the Securities and Exchange Commission (SEC) is on Nortel's case at the moment.

"That Canadian company, they can't do a doggone thing with the SEC in their knickers," says one particularly colorful source.

— Dan Jones, Site Editor, Unstrung and Gabriel Brown, Chief Analyst, Unstrung Insider