The newswires are reporting that Alcatel-Lucent is meeting potential buyers for its enterprise unit this week in San Francisco. News of the company’s intent to sell first surfaced nearly two weeks ago. Possible suitors include Avaya, Cisco, HP, and Siemens Enterprise Communications (SEN). It’s said that SEN is considered to be the front-runner in the deal.
Some industry analysts and bloggers are picking HP to win it and arguing that a buyout from SEN wouldn’t make much sense. But there are also detractors. Dave Michels from Pin Drop Soup postulates, rather succinctly:
If It is cash then Cisco wins (who wants their stock anyway), and if it is a stock deal SEN wins. If it is not cash or stock, it is an IPO.
To me spinning off the enterprise business (which includes Genesys) would make the most sense. There are definitely growth opportunities for this part of the business, especially with Genesys’ momentum in the industry. ALU can partly own and invest in the spinoff if it wishes to continue to enjoy the fruits of the enterprise division. But the spinoff process is sometimes messy and perhaps costly, and it appears that ALU is really eyeing for a cash transaction of at least $1 billion for this sale, instead of a stock transaction.
I don’t believe any publicly-traded company whose core competency isn’t in enterprise telecom would want to touch this deal, simply because Genesys is such a big part of the equation. Cisco, having recently trimmed its consumer business in order to appease shareholders, wouldn’t dare to spend a cool billion on ALU Enterprise. Cisco shareholders want to see more sales of big iron data routers and switches, and new products to fend off cheaper competing products.
A buyout from HP may seem like a match made in heaven, but I think HP has more to gain as a mistress than the bride in this situation. It already has a good partner relationship with ALU Enterprise. HP thrives on partnerships when it comes to augmenting and supplementing its enterprise portfolio, but it will make bold moves such as the Palm acquisition in acknowledgement of its tablet computing failure (the HP Slate) and corrected the course with the Palm buyout. A lot of what ALU Enterprise offers overlap with what HP can already do, except in the contact center and IP telephony areas. With 2Q2011 earnings release coming up in less than a month, I’m not so certain that HP would stir the pot and go for it.
That leaves private equity firms and/or other private investors. Both Avaya and SEN are backed up private equity money, and I wouldn’t be surprised if Silver Lake Partners or Gores Group decides to expand their portfolio with ALU Enterprise. These equity firms have a track record of understanding and not shying away from enterprise telecom companies. However, Avaya hasn’t completely mastered the aftermath from the Nortel Enterprise buyout yet. SEN, on the other hand, is desperate for some traction especially here in the U.S. It’s no wonder SEN is reportedly the front-runner in the deal.
However this deal goes down, my hope is that it isn’t rushed. There are plenty of potential buyers and options, including for ALU to do nothing.