Siemens Bid for Nortel Enterprise Offered Greater Benefit to Canada

As much as I thought the Canadian government should refrain from reviewing or attempting to overturn Ericsson’s acquisition of Nortel’s wireless business unit, I am just as adamant that it should have done more to prevent Nortel’s enterprise assets from falling into Avaya’s hands.

My objection isn’t so much to Avaya, which is taking Nortel’s enterprise business off the market to prevent a stronger competitor from emerging on its North American turf, as well as to milk the Nortel installed base for all it’s worth. Avaya is merely defending and furthering its business interests, which is what successful companies do.

No, the reason the Canadian government should have taken some action was because the competing alternative, from Siemens Enterprise Communications, offered a number of tangible benefits for the country that the Ayaya bid lacked. Just as Avaya looked out for its interests, the Canadian government should have being doing likewise. A Globe and Mail story makes the case persuasively. Here is an excerpt:

A year-long drive by a German company to create a Canadian-headquartered, $5-billion-a-year telecom equipment maker from the remnants of Nortel Networks Corp. ended in failure because of a lack of support from Ottawa, according to people close to the situation.

Plans to create a Toronto-based global tech giant by merging a Nortel manufacturing arm with that of Germany’s Siemens Enterprise Communications fell short despite the full backing of the Ontario government, according to numerous sources in the finance and telecom sectors. Instead of a domestic champion, the iconic Nortel unit is heading into foreign hands, as New Jersey-based Avaya Inc. won the unit with a $900-million (U.S.) bid.

Avaya won the Nortel unit by offering $15-million more than Siemens Enterprise, sources say, although the Avaya bid was all cash, while Siemens offered Nortel’s creditors a combination of $700-million in cash and an IOU on the remainder.

As to why Siemens didn’t outbid Avaya at auction, a source who worked on the Siemens Enterprise offer said the following:

“Avaya was willing to pay a premium to block a major rival out of its home market. We had a price we were willing to pay, and weren’t willing to go above that price.”

“But every dollar of support from EDC (Export Development Corp., an agency of the Canadian government), after the merger, would have been an extra dollar that could have gone into the bid.”

Given what was at stake — a Canadian-headquarterd telecommunications company, a significant commitment to ongoing research and development in Canada, and probably greater retention of Nortel staff than Avaya offered — one has to wonder why Canada’s federal government wasn’t more active in trying to influence the outcome.

The Globe and Mail reports that a source who worked with Nortel and Siemens said the following:

“In any other industrial company in the world, governments get the nuances of these arrangements. If this was France, they would have fallen over themselves to support this concept of a global champion in tech.”

It’s nearly impossible to argue otherwise. In this context, the passivity of the Canadian government is puzzling.

While there’s still a chance the Avaya purchase will be challenged by the Canadian government, or by regulators in Canada and the USA, the deal is likely to be consummated.

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