Avaya has had the planned sale its networking division approved by the US bankruptcy courts.
The company, which entered Chapter 11 Bankruptcy in January having amassed debts of $6.3 billion, has lined up networking specialist Extreme as a potential buyer in a $100m deal.
Any final deal has to be administered as a public auction by US bankruptcy authorities. That process is not likely to be concluded until the summer, and in the meantime other parties are free to make bids.
At this stage, however, Extreme look firm favourites to complete a deal which will mark the first stage in a restructuring plan aimed at streamlining Avaya’s business and refocusing on core markets.
Kevin Kennedy, president and CEO of Avaya, said: “Several months ago, in the context of optimizing our capital structure, we announced that we were conducting a comprehensive assessment of the various alternatives available to us, including expressions of interest in certain Avaya assets.
“After extensive evaluation, we believe that a sale of our networking business is the best path forward for all stakeholders. It provides a clear and positive path for our networking customers and partners and enables the company to focus on its core, industry-leading Unified Communications and contact centre solutions.”
There is certainly no great financial surprise behind Avaya’s decision to shed a section of its business which has not been profitable for the past three years. As Kennedy suggests, it should also represent good news for existing Avaya Networking customers, who will now see the services taken over by a specialist in the field.
San Jose based Extreme certainly see value in taking on Avaya’s wired, wireless and fibre operations. CEO Ed Meyercord says the planned acquisition fits well with the company’s planned growth strategy.
“We expect the Avaya business to generate over $200m in annual revenue, increase our market share and offer new opportunities for our customers,” he said.
More details of Avaya’s restructuring plans are expected to follow, after vice president John Sullivan confirmed details would be submitted to the bankruptcy courts this month.
Sullivan insisted Avaya would come out of bankruptcy, possibly as early as this summer, and survive as a business, although he indicated that a company buyout was the most probable solution.
Avaya continues to make the right noises as it seeks to tackle its crippling debt burden and, just as importantly, regain the confidence of customers and partners that it has a viable business strategy. Running a networking division that recorded negative earnings before interest, taxes, depreciation and amortization for three consecutive years was symptomatic of how Avaya lost its way, both in market focus and core business principles.
Avaya Networking customers should expect to be well served by a specialist like Extreme. What remains to be seen, however, is how far this and the further restructuring news expected to follow convince other customers and partners, who have understandably had their faith in Avaya rattled by recent events.
The main charge is that all of this is too little, too late from a business that became distracted and missed the boat on cloud and service based UC. We will only really know if Avaya has come up with a winning formula to turn things around when details of any proposed takeover or investment are released, and we all get a clearer business of what the long term route forward is for the business.