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Genband Bids $282M for Nortel's VoIP Unit

Ray Le Maistre
12/23/2009
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Genband Inc. has saddled up and ridden forth as the "stalking horse" bidder for Nortel Networks Ltd. 's Carrier VoIP and Application Solutions (CVAS) business with an offer of $282 million, a move that will trigger an auction process in early 2010 when other interested parties can submit competitive bids. (See Nortel to Sell VoIP Unit to Genband.)

A pre-Christmas bid announcement had been anticipated for what is one of the few remaining Nortel business units still to pin down a buyer. (See Analyst: Nortel VoIP Biz Bids Imminent and Nortel: What's Left on the Shelf?)

Genband, which has teamed up with one of its shareholders, One Equity Partners , to make the bid, says the agreed purchase price is $282 million, but the "total cost of ownership [is] in excess of $400 million." That $400 million includes the $282 million starting price plus "required working capital, infrastructure cost, transitional services cost, taxes, and transaction cost," according to a Genband spokesman.

Nortel, meanwhile, says the $282 million price is "subject to balance sheet and other adjustments currently estimated at approximately US$100 million." According to a Nortel spokesperson, that means the purchase price, when an asset sale is completed, will "decrease by approximately US$100 million as a result of certain purchase price adjustments contained in the agreements."

Even without any such adjustment, the price is a long way off the $800 million touted for the unit back in August. (See Analyst: Nortel VoIP Biz Bids Imminent.)

If successful with its bid, Genband will buy Nortel's softswitching, IP voice gateway, and SIP application assets, including associated intellectual property. Genband would also take on "a significant majority of CVAS employees." CVAS currently has about 2,200 staff in North America, Europe, and Asia/Pacific. (See Genband Goes IP.)

Genband, which generated about $145 million in revenues in 2008, would combine those Nortel assets with its existing media gateway and session border controller assets to offer carriers "a comprehensive VoIP portfolio."

Genband notes that it currently shares common locations with Nortel's CVAS business, including "Texas, India, and China," and that, if successful with its bid, the company would expand its "operational footprint in Canada and North Carolina."

Genband has stated its intentions to build its business with Tier 1 operators, and buying Nortel's CVAS business would certainly do that, as it would make Genband a key supplier to the likes of AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ).

The company has already engaged in some acquisition activity to further that strategy, buying NextPoint late last year, and says it already has its equipment deployed in two thirds of the world's top 100 carriers, including many mobile operators, through existing OEM agreements with the likes of Alcatel-Lucent (NYSE: ALU), Ericsson AB (Nasdaq: ERIC), and Nokia Networks . (See Genband Scores NextPoint.)

Find out more about Genband's strategy in this LR TV interview with the shockingly youthful Genband CEO Charlie Vogt, who could easily moonlight as a Rob Lowe lookalike.



It's unlikely that Genband will go unchallenged, though. The CVAS business is regarded as a carrier VoIP market leader, generating revenues of $208 million in the third quarter of this year, having grown 14 percent year-on-year, despite the adverse market conditions and the negative impact of Nortel's bankruptcy. (See Nortel Shrinks Again and Nortel Touts VoIP Market Share.)

Other vendors that might jump into the fray include Nokia Siemens, Sonus Networks Inc. (Nasdaq: SONS), and NEC Corp. (Tokyo: 6701).

— Ray Le Maistre, International News Editor, Light Reading

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