The Bizarre Nortel-Genband Deal

By Mark Evans | Published: January 6, 2010

After eight months on the block and seven expressions of interest, Nortel unveiled the proposed sale of its carrier voice and applications business to Genband last month for $282-million. Like the other asset sales, it is a stalking horse bid now could see other bids before an auction is held.

Despite a lot of speculation about who might bid for the business, which generated $870-million in revenue in 2008, Genband came out of nowhere with its bid. It seems like a low price but what’s even more surprising is that the bid isn’t really worth $282-million. After taking into account a bunch of closing issues, the bid is actually $100-million less. (Source: Ernst & Young Monitor’s Report).

Some other strange parts about the deal include a $3.6-million payment by Nortel to One Equity Partners, which owns 35% of Genband, for providing financing to Genband. As well, there’s a break-up fee of $5-million.

The carrier business employs 2,185 full-time employees, including 592 in Canada, who mostly do R&D. In the Monitor’s Report, Genband said it has committed to retaining at least 1,638 employees

If another bid materializes, an auction will be held Feb. 24 in New York. Other bidders could include Huawei, Alcatel-Luccent, Nokia Siemens, Broadcom, Metaswitch and Sonus.

For more details about the Genband bid, check out Bert Hill’s story in the Ottawa Citizen.

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  • Nortelian
    Genband has been sort of the defacto "standard" in the carrier IP gateway business for a few years now. Their G6 gateway is a good product. It has been sold by CVAS directly to customers as a gateway on CS2K & CS1500 as well as being used as the interface in "rips" of competitors old TDM switches. Genband owns the code & support for both DCO & EWSD TDM switches. If they are the successful bidder, they will also then have the same privileges with DMS switches giving them a huge customer base to sell gateways,softswitches. extensions, and support into.
  • felixmk
    Hey, its not as bizarre as the GSM deal, check that one out..
  • exNTII
    Genband was always there. So the post is incorrect that they came from nowhere. But they will not be able to secure this business. It will definitely go for around the $350 million mark.

    The statement around actual deal being 100 million less is concerning though. Maybe there is something fishy going on to ensure it goes to Genband just like Nortel ignored the all cash deal from NSN for MEN.

    3.6 million paid by Nortel to buy the unit is quite bizarre.
  • protosphere
    Genbad executed three major acquisitions and grown annual revenues from $5 million to $145 million (YE 2008).

    Increased sales from 2004–2008 grew 2,869 percent during this period.
    If to $5M beginning 2008, they could not have been that large a player only a few years ago in 2004 for this percentage of increase.

    Now they bid almost twice their revenues on NT's VoIP?

    Impressive partnering too.

    What are their earnings? Anyone know?
  • anonwatcher
    GENBAND has never been profitable. The real funny thing here is that 90% or so of GENBAND' products are sold through Alcatel. So, are we to assume that Alcatel will be selling Nortel's products?
  • whopperscan
    Good question. I googled, yahoo financed... no mention of financial results. Yahoo finance doesn't even find them on the US stock exchange...?
    Their web site lists "investors"... are they private?
    Extraordinary growth... they were nothing only a few years ago. They'll need to work hard to inject whatever they have, into the CVAS culture if they win.
  • Troller
    Yes, Genband is a private company.
  • heavencanwait
    It would be interesting to see who (among the 7 who are supposed to be very interested in buying CVAS) will be participating at the auction.
  • OneOfTheFewLeft
    Several months back Dave Murphy said in a GIS that if Genband bought CVAS he would quit. Lets see if he keeps to his word
  • exNTII
    My bet is he will not. Who is he anyway?
  • OneOfTheFewLeft
    Leader CVAS Technical Operations
  • random123
    I dunno who Dave Murphy is but myh guess is he needn't worry.

    My money is on HP buying CVAS. Would fit well for their new business unit

    http://h20208.www2.hp.com/cms/news/press/2009/pr_0001.jsp
  • XPM_guy
    Court approval of Genband's OEP-funded stalking horse bid has been secured. The auction is to be held February 25th:

    http://www2.nortel.com/go/news_detail.jsp?cat_id=-8055&oid=100265247&locale=en-US
  • wasthere
    I agree that these ways of doing things looks weird but Hey ! ..... This is Nortel ! My question to Bert Hill although would be this one : If this bid like you say looks very unattractive to creditors because being on the very low side of CVAS value why then some NNL bonds(US) keep trading up on the market : 75-76 cents on the dollar as per today ; up more then 15% in the last month and up 500% since march 2009 ?

    http://www.investinginbonds.com/corporatebonds/(tntgvo55mrubfj45dhg1aoex)/cusip.aspx?action=all&cusip=656569AD2
  • random123
    "Genband came out of nowhere with its bid".

    Erm.. no it didn't. Industry speculation has been on Genband going for CVAS for some months. It was commented about here, along with Sonus.

    it's good to see the Citizen column recognise that CVAS still leads the industry.

  • TongueInCheek
    Two objections have already been filed in the US related to the One Equity Partners payment prior to this original post.

    I expect the CVAS sale to be the most complex compared to the other business units. The role of CVAS solutions in networks globally is very important and I would expect Service Providers will want assurances from the purchaser that their contracts will be fully assumed and long term support guaranteed.
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