Update: On Federal News Radio 1500 AM’s Daily Debrief with Chris Dorobek and Amy Morris Tuesday, we spoke to Chuck Saffell, chief executive officer and chairman of the board of Nortel Government Solutions, Nortel’s wholly owned U.S. subsidiary. Hear that conversation here:

Many people have been watching what happens with Nortel Government Solutions after the parent company, Nortel Networks, filed for bankruptcy earlier this year. Nortel has scores of government users — it operates one of the largest voice over IP networks anywhere for the Social Security Administration.

Nortel announced today that Avaya for Nortel’s enterprise solutions business, which includes Nortel Government Solutions, $900 million cash, with an additional $15 million reserved for an employee-retention program.

The WSJ notes:

With the acquisition, Avaya’s market share will surpass Cisco’s in North America, giving it access to Nortel’s corporate customers, which include more than 80 of the Fortune 100 companies. Avaya will also be able to expand its distribution capability through Nortel’s network of reseller partners.

Last week, Verizon issued a court filing arguing that the sale of Nortel’s enterprise business jeopardizes critical U.S. law enforcement, anti-terrorism and national defense interests, because, the WSJ reports, Avaya has said that it won’t take on Verizon support contracts.

“Communications networks critical to the operation of the federal government, and the defense, safety, health and security of the American public are at risk,” Verizon said in a court filing Wednesday.

Avaya said it was in discussions with Verizon to try to negotiate arrangements to support the Verizon contracts, the WSJ reports.

Read Nortel’s release here… or below…

Nortel Selects Avaya as Successful Bidder for Enterprise Solutions Business

• Will sell the assets of the Enterprise Solutions Business, and shares of Nortel Government Solutions and DiamondWare to Avaya
• Avaya to Pay US$900 Million in Cash to Nortel, with an Additional Pool of US$15 Million Reserved for an Employee Retention Program
• Canadian and U.S. Court Approvals of Sale will be Sought at a Joint Hearing on September 15
• Combination Provides Current and Future Customers with Investment Protection and Clear Path Forward

TORONTO – Nortel* Networks Corporation announced today that it, its principal operating subsidiary Nortel Networks Limited, and certain of its other subsidiaries, including Nortel Networks Inc. and Nortel Networks UK Limited, have concluded a successful auction of substantially all of the assets of Nortel’s global Enterprise Solutions business as well as the shares of Nortel Government Solutions Incorporated and DiamondWare, Ltd. Avaya Inc. (Avaya) has emerged as the winning bidder agreeing to pay US$900 million in cash to Nortel, with an additional pool of US$15 million reserved for an employee retention program.

The sale is subject to court approvals in the U.S., Canada, France and Israel as well as regulatory approvals, other customary closing conditions and certain post-closing purchase price adjustments.

Commenting on the announcement, Nortel Enterprise Solutions President Joel Hackney said:

“This is fantastic news for our customers, as this will empower us to continue to deliver industry-leading solutions and services focused on unlocking the enterprise business potential enabled by unified communications. It provides the capability to chart our future with laser-focus, enabling customers to compete in new ways with greater scale and resources. We look forward to working closely with our customers, partners and stakeholders during this pre-close phase to ensure that we continue to innovate to meet customers’ needs with high-performance, efficient and secure communications solutions.

“As we work through integration planning, it is business as usual, and we will continue to focus on supporting our installed base,” Hackney said.

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“Through deal close and beyond, we will deliver on our stated customer commitments and maintain high levels of service and support. We will ensure our customers can fully leverage their existing Nortel investment as they benefit from the complementary capabilities of the Nortel and the Avaya portfolio of products and services.”

In addition, given the complementary strengths of the two companies in the U.S. Federal Government market, the combined operations are anticipated to yield a company best-suited to address the unique information technology requirements of the civil government and military. Noted Chuck Saffell, CEO of Nortel Government Solutions:

“The companies’ strengths in the information technologies sector of the U.S. Federal Government are remarkably complementary. Our combined product offerings, as well as our strong professional services business and solutions approach provide a win-win for both our government customers and our business. With our combined knowledge of the federal market, we will be focused on delivering the best-performing, most cost-effective capabilities available to support our customers’ mission. Our goal continues to be helping our customers provide security, livelihood and well-being for the citizens of the United States.”

Customers look forward to the potential the future holds for them.

“Nortel earned the trust of our user group members by delivering innovative, reliable communications solutions and ensuring high-levels of service and support, “ said Victor Bohnert, Executive Director of the International Nortel Networks Users Association. “With the announcement of today’s purchase by Avaya, we look forward to extending that relationship forward to serve the business communications needs of our constituency base across the globe.”

Partners also benefit from the move.

Both Nortel and Avaya channel partners will have opportunities to grow their business as the move to unified communications accelerates and the need for advanced services to design, deploy and manage such solutions expand. “The independent members of the Nortel Distributor Alliance Council are excited about the future potential that today’s announcement brings to the tens of thousands of enterprise customers we support,” said Rick Dawybida, President of DAC Americas. “We look forward to a commitment focused on ensuring customers can fully leverage their prior investments while also getting expanded choices. The combined portfolio capability of Avaya and Nortel will offer the marketplace industry-leading solutions as companies move aggressively to unified communications.”

While today’s auction is a significant step in the overall sale process, it is not the final step. Nortel will work diligently with Avaya to close the sale later this year, subject to the timing of regulatory approvals. Nortel will seek Canadian and U.S. court approvals of the proposed sale agreement at a joint hearing on September 15, 2009. The sale close is expected late in the fourth quarter 2009. In some EMEA jurisdictions this transaction is subject to information and consultation with employee representatives.

As previously announced, the Company does not expect that its common shareholders or the preferred shareholders of Nortel Networks Limited will receive any value from the creditor protection proceedings and expects that the proceedings will result in the cancellation of these equity interests.

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