Nortel offloads Alteon division for peanuts

Nortel wants to speed up the sale of assets of its application-delivery division because it's worried it will get less money from the sale as time goes by, according to bankruptcy court documents.

The ailing networking and telecommunications company agreed last week to sell the assets to Radware for about $17.65 million (£12.1 million) as part of its bankruptcy restructuring plan. That's a huge drop from the $7.8 billion it paid for the business, then called Alteon WebSystems, in 2000.

The division makes Layer 4-7 switches, which use detailed traffic information to accelerate and load-balance application traffic. Under the proposed deal, Radware would buy the Layer 4-7 products along with intellectual property and some inventory and service contracts. Products from Nortel's Application Accelerator and Application Switch line, as well as the Virtual Service Switch 5000, would be included in the sale. Radware would sell them under the Radware Alteon brand name, and Nortel would be able to keep reselling the products.

Nortel had already shopped the assets around for several months before it sought bankruptcy protection on Jan. 14, according to an affidavit signed by Hyacinth DeAlmeida, leader of corporate business development at Nortel. It chose Radware as the buyer because that deal offered the best terms, she wrote.

But the sum Radware was willing to pay went down as discussions between the companies continued, particularly after Nortel declared bankruptcy, DeAlmeida wrote. Nortel believes that as time goes by, the price of the application-delivery assets will fall further. The company is also worried that if a list of its hundreds of contract customers is revealed along the way, the value to a buyer will fall further.

In the affidavit, filed in the US Bankruptcy Court for the District of Delaware, Nortel asked that the sale be completed as soon as possible. It noted that the networking industry is undergoing cutbacks and consolidation. Rivals, including Juniper Networks and F5, have been trying to attract customers away from Nortel's application-delivery business.

Nortel is trying to reshape itself after years of losses in an increasingly competitive industry. In addition to the Alteon sale, the company has already backed out of the WiMax access equipment business and discussed other assets.
The consolidation of carriers has left fewer customers for makers of telecommunications network gear, and observers say Nortel never fully recovered from a drawn-out financial scandal after the telecommunications bubble burst early in this decade.