Siemens’ Failed Pursuit of Nortel’s Enterprise Business

By Mark Evans | Published: September 18, 2009

After the recent auction of Nortel’s enterprise business was said and done, Siemens Communications lost by a measly $15-million – and the fact it’s bid consisted of $700-million in cash and and IOU, while Avaya offered all cash.

But Siemens’ failure to win the auction was the last of many attempts it made to buy the enterprise business. According to an article in the Globe & Mail, Siemens approached Nortel last year about buying the business to create a $5-billion enterprise entity with strong footholds in Europe and North America.

“We wanted to take Nortel’s North American market leadership and Siemens leadership in Europe, and create a world beater in the field, based in Toronto, that would take the fight to Avaya,” a source told the G&M.

A deal, however, failed to happen but Nortel and Siemens started talking again in January after Nortel filed for bankruptcy protection. It looked a deal was gaining traction when the Ontario government agreed to provide a $75-million grant, while Export Development Canada considered making a $300-million loan.

According to sources cited by the G&M, the deal hit the skids when EDC pulled its loan offer after RIM co-CEO Jim Balsillie raised a political stink in July by claiming RIM had been shut out of the bidding for Nortel’s CDMA business and LTE R&D unit.

While Siemens decided at the end of the day it wasn’t willing to bid higher than the premium price that Avaya was willing to pay, the one question that begs to be answered if why Siemens didn’t make a higher “stalking horse” bid than Avaya if had been so interested in the enterprise business for such a long time.

Not that a higher “stalking horse” bid would have made a difference at the end of the day, but it appears that Siemens may have been outmaneuvered by Avaya.

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  • NortelEmp

    What a &#^% mess. Canada needs to get its act together on what it wants to be when it grows up. Just like Nortel, the Canadian government is transaction focused with no thought to the future.

  • PM_Guy

    Joel Hackney, Mike, Z, BoD and now the Gov't of Canada have proven their incompetence.

  • GoProto

    Sad, isn't it? Since no one's leading, it's the Blind and the Blind.

  • zeroman

    Knowing Nortel, I think they just used Siemens as a patsy to drive up the price always intending to sell to Avaya. They were talking to both Avaya and Siemens but I think the Avaya discussions were more serious intent.

  • Zhacknightmare

    The foact Avaya have taken over Nortel makes me laugh. Nortel PR under the direction of the Stranger only released this internal PR in Q1 '09. Have a read and cringe.

    “Internal PR Release” Haha…

    Avaya Attack on Nortel’s Installed Base

    What Happened?

    Avaya has launched a global program in an effort to displace Nortel’s valuable installed base of customers through promotional offers and claims that the customer can move to an Avaya platform for a similar, or even lower, price point.

    How to counter Avaya’s claims:

    Avaya Claim: You will get a flexible system from a communications partner with a strong financial outlook.
    Nortel Counter: In response to Avaya spreading FUD (Fear, Uncertainty and Doubt) around Nortel’s finances, use the Moody's article that highlights Avaya’s vulnerable financial situation. Below are two excerpts from the article:
    ‘Approximately $5.8 billion in rated debt securities affected.’
    ‘Despite the strong cash generating capabilities of the underlying business, the debt service, pension service and capital requirements of the business leave minimal cash in the next few years to pay down debt and little cushion in the event of a downturn.’

    Avaya was purchased in October, 2007 as a private equity investment by TPG Capital LLC and Silver Lake Partners. As Richard D. Foster of the respected consulting firm McKinsey & Company said, “What is not widely known is that two-thirds of private equity transactions fail to achieves their objectives.” Furthermore, given Avaya’s financials are not publicly disclosed, what do they provide potential customers to prove that they have a strong financial outlook?

    Avaya Claim: Migrating to Avaya’s IP Office and Communication Manager is a better option than upgrading to BCM or Communication Server 1000.
    Nortel Counter: This is false. Following are a few silver bullets against Avaya. For more competitive advantages please read the documents below:
     Nortel CS1000 vs. Avaya Communication Manager
     Business Communications Manager (BCM) vs. Avaya IP Office
     Nortel BCM450 vs. Avaya IP Office and other competitors
     Nortel’s extensive data portfolio is a major differentiator between Nortel and Avaya in a market that is shifting towards unified communications (UC) over converged networks. Avaya’s reliance on partnerships with second-tier data vendors limits its ability to support customers’ requirements.

     Nortel delivers excellent investment protection through its migration strategy, which includes a simple system transformation path from Meridian 1 to CS 1000 platforms or Business Communications Manager (BCM) to Survivable Remote Gateways (SRGs). Avaya legacy systems cannot take full advantage of features when upgraded to Communication Manager.
     CS 1000 is an essential part of the UC solution in which Nortel is a market leader. CS 1000 was the first PBX to integrate to Microsoft® Office Communication Server (OCS) 2007, providing both dual forking and Remote Call Control with seamless user experience. Avaya simply lags behind Nortel

    Avaya Claim: For an equal or lower price point customers can move to an Avaya platform.
    Nortel Counter: Wrong again. When current Norstar customers upgrade to the BCM platform the investment protection is phenomenal – up to 70%. Additionally, using current programs/promotions, it’s highly unlikely that Avaya can beat Nortel pricing.
    Using historical Avaya pricing and comparing it against our prices (assumes 13% VID and 10% additional discount on voice from marketing promotion UC Flex), our prices are comparable to Avaya’s and in some cases, better. If you are faced with a competitive bid for an installed base customer, you also have the option of taking it to SBA with the Match Plus Pricing Policy
    Customers upgrading from Meridian 1 to CS1000 R5.5 software can maximise the life of their existing investment, take advantage of the new features and preserve investments in desksets. Avaya maintenance services are expensive and additional training will increase TCO. Share this paper with prospective customers: 10 reasons to migrate from your Meridian 1 to the Nortel Communication Server 1000.

    What to tell the customer:

     Get the word out to your channels that Nortel will not lose to competitive displacement offers. Beat any like-for-like commercial attack promotion for any product in the Enterprise price catalogue using ‘Match Plus’ campaign
     Nortel will continue R&D investments and support of our product portfolio to fulfil customer needs
     Nortel will continue high quality service and support
     Show the Corporate Restructuring presentation: Enterprise Sales Training
     Avaya has experienced significant turnover in sales and management personnel following the acquisition of the company by TPG and Silver Lake Partners.
     Avaya announced layoffs of 600 people in Germany alone last month
     Use Statements of Strength customer-facing document to highlight our leadership proof points that reflects the momentum of our business and performance to date
     Position current Marketing Promotions with your customers
     Highlight Nortel Enterprise Market Leadership Industry perspective and Awards across the portfolios which demonstrates the breath and depth of our solutions including market acceptance and traction

  • fabrice002

    Perhaps Siemens' strategy, once Nortel was in BK, was to bide its time expecting the market price to drop. There was likely little stalking horse advantage to it if those earlier talks provided some of the info it needed.

    Anyway, these situations are a bit like (US) football matches: unpredictable outcomes, and plenty of monday morning quarterbacking.

  • NortelEmp

    Transaction-based marketing / PR. Not thinking past the nose. React to the environment without considering the future. If Nortel was in talks with Avaya back in Q1 of this year, maybe someone should have noted so to the PR folks. Nortel appears either slimey or ignorant. Neither is good.

  • random123

    Zhacknightmare:

    In all of the above, which parts of it are lies? They didn't say that Nortel were financially OK, they just said that Avaya wasn't OK. i.e. a counterattack.

    At the time of issue, exactly what parts of the above were lies?

  • zeroman

    The same can be said about Avaya. They were in talks yet attacked Nortel. Same with Nortel. Hopefully they were not overzealous with the PR overdoing attacking each other because each have said the other is hopeless.

    Nortel and Lucent mentality is a bit shortsighted. Reactive and point fingers at the competition rather than show what they are better at.

    Kind of leaves Cisco in the open to make a killing. I hope they do.

  • MichelangeloF536

    Take a look at Avaya's leadership team.

    CEO Kevin Kennedy was at Cisco for eight years. Sales and Field Service VP
    Todd Abbott spent time at Cisco. Global ops VP Baratz came directly from Cisco.

    Perhaps this will lead away from the reactive mentality that has dragged Avaya and Nortel down in the past. We shall see. I hope it does.

  • Moose_Chaser

    I agree – as I understand it, the environment at Avaya is basically like Cisco, since ex-Cisco types are runing the show.

    The Nortel country club is over guys…

    MC

  • Zhacknightmare

    Taken into context of recent events if the above was communicated to customers verbatim it is implying Nortel is in a stronger financial position than Avaya. ALL UNTRUE & Hilarious.

    At the time of this Sales Cheat Cheat (30th Jan 2009) Nortel was:

    1. Planning massive layoffs that broke UK Employment LAW
    2. Most likely dodging Taxes in the US
    3. Planning massive Exec bonus's while they conned Creditors & Shareholders
    4. Lying to the markets by saying they had NOT consulted with Bankruptcy Lawyers
    5. Planning to rip off those Ex Nortel employees on Long Term Sick Leave, Pensioners etc.
    6. Underfunding the Pension
    7. Making Pregnant employees redundant and refusing to pay Maternity pay

    Get REAL 123, who are you, Mikey Z's wife or his Pet the Strangler…… maybe it was you who started the “I Believe” Group of Nuts????

  • GoProto

    Not only that, I think the interim CEO before Kennedy at Avaya was at Cisco ( as CEO ?) for many years and is now at SilverLake. He is probably calling the shots, and obviously they back their investment up with major telecom experience.

    As most concur – Avaya is run as a tight ship, not like Nortanic.

  • GoProto

    Sounds perfectly Nortel-like to me.

  • GoProto

    I'm not sure I see anything wrong with this. It's just business. Nothing sticks out as somehow morally reprehensible. You have to be proactive to stay alive. All companies do, or should be doing this to prepare their salespeople on how to counter claims that someone elses product or support is better.

  • GoProto

    We will probably never know the truth. Suffice it to say it was a rocky road with several obstacles and only one winner. It is sad however to know that there was a better then fair chance for the company to remain based in Canada, and know how close it was to happening.

  • brett5

    It needed to be.

  • random123

    I'm no fan of Nortel, and am only related as one of their customers. But I would like to know wher ethey actually lied.

    You haven't pointed out any lies. Nortel in the above never denied any of those things you have listed.

    I'm all for knocking Nortel. But let's do it on an honest basis, not make up lies where there aren't any.

  • zeroman

    I know. These guys are well respected too. The Avaya org is more open to the path of change compared to Nortel when it got Cisco execs. Everybody VP down was worried. These guys cannot change the entire org because it is culture. Has to be driven down but that means middle managment changes.

    Avaya also had enough time outside Lucent. Hopefully they changed. Changing Nortel is going to take time. It will be welcome change for some and shocking real world for others. This will take time creating an attacking opportunity. Not all of Avaya will stay, neither will Nortel. What do you think Cisco will do here. Sit quiet. They are the pedigree.

    But you look at Cisco – you see top people. You look at Avaya – you see they got top people. You look at Nortel – you see Z, Hack and co. and wonder. Would they ever have been successful in turning around a 10 billion Nortel. Never.

    What was the BoD ever thinking?

  • zeroman

    I wish I could see the look on Kevin's face when a Nortel VP comes with his hyped up wish wash ops review. And then I'd like to see his face a month later when not much on that chart changed except for a few colors with more hot air blown around the room.

    brutal reality awaits.

  • Another_Nortel_Watcher

    …And ex-Nortel guys are running the telecom show at Cisco now! (O'Sullivan & Slattery)

    How funny is that!

  • zeroman

    I don't work at Nortel but think the above is false. You say most likely on 2. is that not speculation on your part. Most of what you say is either incorrect, hearsay or pure speculation.

    there is nothing from the UK government. long term sick leave is still being honoured. pension was already underfunded. nothing would have changed. pregnant women being cut – would that not have made national media.

    No company in the world will scream from the highest building they are going bankrupt. The annual reports were enough to see poor financial footing. But that is upto the customer to see it.

  • wasthere

    Enough talking about what's already a done deal and history. Can we move forward please.

    Mark, over a month ago, you did issue that post :

    Sonus Pursuing Nortel’s VoIP Business?
    By Mark Evans | Published: August 14, 2009
    As the Nortel Garage Sale continues, it looks like the company’s VoIP business could be the next bargain to be snapped up.

    Samih Elhage, president of Nortel’s carrier VoIP and application solutions business, told the Financial Post earlier this week that a “stalking horse bid” was on the near horizon.

    Lightreading reports that a leading candidate to buy the VoIP business is Sonus Networks, citing a report by Avian Securities analyst Catharine Trebnick who suggests Sonus is “aggressively pursuing” Nortel’s VoIP assets.

    Other players who might be interested include the usual suspects: Nokia Siemens, Ericsson, Huawei and Alcatel-Lucent.

    What's up ?

    MEN what's up ?

  • NortelTragedy

    The Avaya leadership must sit around joking about Hackney and what to do with him …

    * EXTREMELY THIN EXPERIENCE
    * WOMAN BEATER
    * LIGHT BULBS @ GE
    * BLACK BELT
    * ASSAULT & ANGER MANAGEMENT
    * WEAK
    * SISSY SMILE

    In fact, relative to telecommunications experience, Hackney is probably **THE** LEAST EXPERIENCED person in Enterprise. Unbelievable.

  • NortelTragedy

    There's a lot of ex-Nortel at Cisco: http://blog.tmcnet.com/blog/tom-keating/voip/no…

  • Candodo

    Personaly I think it's about American protectionism at play.
    Canadian Government has been blindsited once again…….

  • fabrice002

    Any more, the location of a company's HQ seems to have little meaning about how they will act with the citizens of that country. At least, that seems to be the American model.

    I really don't think HQ location matters. Multinationals have morphed the concept. See http://www.gao.gov/new.items/d03194r.pdf for the leading US federal contractors headquartered in other countries as tax havens.

    Other than the tax benefits it receives, the only thing a multinational expropriates is its profits. But most are publicly held, and equity in them can be purchased around the world, which, in principle, means those benefits are returned to the shareholders regardless of location.

    I think calls to 'protect the vital [U.S.] or [Canadian] interests' is hoo-hah to to cover other motives.

  • 28yearnt

    Anyone recall any manager get laidoff since 2000 in Nortel?

  • protosphere

    http://www.theglobeandmail.com/globe-investor/o…

    Sep. 18, 2009 07:09PM EDT

    The Ontario government and federal Liberals are pushing for a review of the planned sale of Nortel Networks Corp.'s (NT-T0.18—-%) enterprise unit to Avaya Inc., with a view to preserving the tech giant's base in Canada.

  • Zhacknightmare

    OK 123 Appreciate your comments.

    My point elaborated.

    In the UK when a company makes a large group redundant they have to enter a consultation period with the staff by Law. Between consultation & notice this period has to last three months. In Nortels case they rounded up the employees into a room and told them they were gone by lunchtime the following day. Am employee I knew personally (BEng, Good Employment record, dedicated) had 36 years service received one day notice and no severance.

    This IS breaking UK Employment LAW in this case.

    Nortel also made employees in the UK who just had babies and were out on maternity leave redundant denying them them their legal entitlement to Maternity pay.

    Also why in most countries is the Pension plan the largest creditor, because Nortel underfunded them.

    See below just on the employment bit.

    http://www.shameonyounortel.co.uk

    In the meantime they PAY Execs Bonus for delivering sales 50% down quarter on quarter. This is Enron stuff here.

    There are lots more references to Nortel being unethical on the Web if you do a search.

  • wasthere

    Looks like the politicians are throwing the same liner over and over each time a Nortel business is sold. The federal and provincial governments have made their choice : they gave all their dough($10 billions) to preserve the car makers of the future(GM & Chrysler) !!!!!!!!

  • GoProto

    It may sound crass, but it is not so much, IMO, the Reality (dollars & cents) of where the HQ are as much as the Public Perception (branding) of the Company. You don't think that having a successful Industry Giant HQ in a certain country may attract same or other Industry Founders there? Of course too, what about HQ location in relation to jobs in that locale ?

  • GoProto

    You forgot one: Fruitcake.

  • GoProto

    Yes, you wonder ~ if Someone decided to sell the company out. Like, a Death Wish. Unfortunately, if you look at all their actions from that point of view, things almost seem to make sense. I don't really believe that, but then again, I;m not sure what to believe anymore. I still wonder why Z screwed up the acquisition of Avaya a few years back. That, IMO, was a dumb move, and why?

  • MichelangeloF536

    At what level? When I got laid off in 2001, whole departments were getting whacked, including the managers.

  • fabrice002

    I agree that there's still the perception that it matters. The multinational uses the branding, as you say, to negotiate whatever it thinks is most “positively accruative to the bottom line”, to borrow a phrase.

    But in terms of job siting, that usually occurs where the work is actually performed. That's how regional concentrations of specific industires develop. Several large, well-know international electrical connector companies opened offices and factories in the same metropolitan area as the leading US manufacturer – but to tap the skill base, not the upper management.

    It is as you say, largely a matter of perception. I've asked the question several times in this forum as to how many jobs Nortel Enterprise has in Canada, apart from top brass, and haven't seen so much as a SWAG. As far as I can tell, it's largely a US organization, but Canadians don't seem to think so. After all, it's a Canadian company, right? ; >)

  • GoProto

    Yup, after all.. What is interesting is that there is this big push to say that Siemens would have kept the base of a “Tech Giant” in Canada, implying that so many jobs would be saved ~ but if you look closely, I also read something about yes, jobs would be lost too in CA, but “dozens of jobs”
    in some arena or other would be created. Dozens? Not exactly what I call a material number, eh? I will look for the source more specifically over the coming days.

  • josejenkins

    The Gores Group is ill equipped to managed what little is left of Siemens Communications. Nortel should thank there lucky stars!

  • josejenkins

    The Gores Group is ill equipped to managed what little is left of Siemens Communications. Nortel should thank there lucky stars!

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