Nortel Networks has entered a "stalking horse" agreement in which Avaya will buy its enterprise units for $475 million (£291.7m).
The move comes about a month after Nokia Siemens Networks entered into a similar agreement to buy Nortel's carrier wireless assets for US$650 million.
"Short term it's good for enterprise buyers," said Brownlee Thomas, principal analyst at Forrester Research. "For Nortel, it says we've got hope. Of course we don't always know how long these products will be supported."
The move comes about a month after Nokia Siemens Networks entered into a similar agreement to buy Toronto-based Nortel's carrier wireless assets for US$650 million.
The agreement is subject to approval from US bankruptcy court and the bankruptcy division of the Ontario Superior Court of Justice. Other companies would have the option to propose higher bids. The deadline for competing bids was not immediately available.
Nortel has been operating under bankruptcy protection since January.
The agreement with Avaya was praised by the Nortel Networks Users Association.
"It's a step we've been waiting for for some time," said the association's executive director, Victor Bohnert. "Nortel's product line has never been in question. They are at the top especially with unified communications."
But Nortel has lost money almost every year since 1998 (it lost more than $27 billion in 2001 alone) and had to restate financial results several times. It filed for creditor protection Jan. 14.
"The creditor protection process has hurt Nortel's chance of selling new products and engaging new partners," Bohnert said.
Avaya was spun off from Lucent Technologies in 2000 and makes unified communications and other telephony products for corporate and government users.
If Avaya buys the enterprise unit and Nokia Siemens Networks buys the carrier wireless assets, which include CDMA and LTE technologies, this would leave Nortel with its metro Ethernet unit, for which is it also searching for buyers.
Forrester analyst Henry Dewing said: "This puts Avaya ahead of Cisco for Enterprise voice sales and enters them into the networking business. There are advantages for Avaya and Nortel - achieving scope and scale to lead the worldwide communications market.
“There are opportunities for buyers to have global vendor offering hardware, software, and services to advance their communications and collaboration capabilities. Both firms recognise the need to serve mixed vendor environments and leverage many channel options and partners for delivery.”