Avaya Plans Sale of Networking Business to Extreme Networks

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Avaya, which filed for chapter 11 bankruptcy in January, plans to sell its networking business to Extreme Networks for $100 million as part of its restructuring.

Avaya has entered into an asset purchase agreement with Extreme, under which Extreme will serve as the primary bidder in a section 363 sale under the U.S. Bankruptcy Code. Avaya filed for chapter 11 bankruptcy protection to reduce its debt load of about $6.3 billion, and said it has no plans to sell its call-center business.

Avaya has been transitioning from a legacy hardware business to a software and services company.

“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,” said Kevin Kennedy, Avaya’s president and CEO. “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 center solutions.”{ad}

The networking-business acquisition furthers Avaya’s “overall restructuring goals as we position the rest of Avaya for long-term success,” he said.

“The possibility of Avaya networking being part of a pure-play networking company like Extreme Networks would allow greater opportunities for its products and services to thrive and the industry to continue to benefit from our award-winning wired, WLAN and fabric technology,” Kennedy said.

The sale process will be administered by the U.S. Bankruptcy Court for the Southern District of New York and governed by the bankruptcy code. Other interested parties will be given the opportunity to submit bids prior to a deadline set by the court. If other qualified bids are submitted, an auction will be conducted in which the agreement with Extreme would set the floor value for the auction.

Approval of a final sale to either Extreme or a competing bidder is expected to take place shortly after completion of an auction. The transaction is expected to close by June 30, the end of Avaya’s fiscal third quarter 2017, subject to regulatory approvals and other customary closing conditions.

“The addition of Avaya’s networking business is consistent with our growth strategy and will broaden Extreme’s enterprise solutions capabilities by complementing our product portfolio across our vertical markets,” said Ed Meyercord, Extreme Networks’ president and CEO. “Furthermore, we expect the Avaya business to generate over $200 million in annual revenue, increase our market share and offer new opportunities for our customers.”

At last month’s Avaya Engage conference, Kennedy told attendees the company’s debt structure developed prior to the last recession, and continuing to service the debt proved too expensive, so “we had to reorganize our asset base … in order to grow and have a much more compelling future.”

By filing for chapter 11, Avaya can cut in half its debt, reduce its debt service by 50 percent and obtain more free cash flow to invest in M&A and additional R&D, he said.