Bankruptcy judge rejects Verizon objection to sale of Nortel business systems unit

Nortel bankruptcy judge denies Verizon objection

WILMINGTON, Del. — A Delaware bankruptcy judge on Wednesday rejected an objection by Verizon Communications Inc. to Nortel Networks’ $900 million sale of a unit that makes communications systems for businesses.

Basking Ridge, N.J.-based Avaya Inc. has agreed to pay $900 million in cash for Nortel Enterprise Solutions and contribute $15 million to an employee retention program. An auction that concluded early Monday resulted in the privately held company agreeing to pay almost double the amount of its “stalking horse” bid of $475 million for the unit, which supplies phone systems and other communications equipment to businesses and large organizations, including government agencies.

Verizon, a major user of Toronto-based Nortel products and services, objected to the sale, saying Avaya’s refusal to assume contracts it has with Nortel could jeopardize communications systems of Verizon business customers, including various government agencies.

“As a result, the public’s safety, welfare and security will be placed at an immediate and considerable measure of risk that simply cannot be simply or quickly rectified,” Verizon said in a court filing Monday.

Following a hearing Wednesday morning, however, Judge Kevin Gross overruled Verizon’s objection and ordered that a hearing to approve the sale proceed.

The judge suggested that Verizon’s objection was premature because the sale had not been approved and no contracts had been assumed or rejected.

He also noted that Verizon had failed to demonstrate that Nortel and Avaya were the only companies that would be able to service the contracts, and that he believed the dispute was largely an economic issue, not a public safety issue.

“The sale is going forward on the terms that the court previously approved,” said Gross, who was to preside over a sale hearing later Wednesday.

According to Verizon’s filing, Avaya representatives told Verizon that they did not want to assume the contracts because they include contingent liabilities Nortel faces in a patent infringement lawsuit against New York-based Verizon, which is pending in federal court in Texas.

Verizon attorney Darryl Laddin rejected Nortel’s suggestion that Verizon was simply angling for better contract terms from Avaya.

“All that Verizon has ever asked for … is the assumption of their existing contracts, and nothing more,” Laddin said. “Not a single change in the terms.”

But attorneys for Nortel and Avaya maintained that Verizon’s real concerns were related to finances, not national security.

“It’s all about money,” said Mark Bane, an attorney for Avaya. “Avaya has no reason not to do business with Verizon.”

During a break in the hearing, however, Bane refused to say whether Avaya was willing to assume the contracts.

“I can’t talk to that,” he said.