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At the Siemens Enterprise Communications Analyst Conference in Vienna discussion of a deal that would consolidate the enterprise communications industry further was rampant. Thomas Zimmermann, COO and Gerhard Otterbach, CMO let the room full of analysts know that a deal was close at hand and would be announced any day in the business press. I had dinner with Thomas and a few other analysts high atop Vienna on a wine vineyard complete with a full moon rising over the city as the backdrop to an industry restructuring conversation.

Many believe that Siemens will either be acquired by Nortel or private equity firm Cerberus Capital. We discussed the potential scenarios of Siemens being acquired by a competitor, software provider and financial sponsor to see which would be best for customers, partners and Siemens. I'm concerned that a competitor match up would not create additional value beyond the combination of the two firms.

Consider if Nortel and Siemens do combine. This combination makes sense from a market share point. Nortel has a large share in North America while Siemens owns nearly 10% share of the US market for Enterprise Telephony according to Synergy Research Group and has a leadership position (nearly 20% share) of Western Europe's Enterprise Telephony market. Over the past eighteen months Siemens has locked up German distribution channels to other competitors by signing deals with new indirect channel partners. In short, a Nortel-Siemens deal would create a global provider of enterprise telephony solutions unmatched by any other provider. Nortel will get a professional services group that it has started to rebuild after it announced ICA with Microsoft too. There are a few concerns about this scenario.

Product Transition: Both Siemens and Nortel are transitioning their TDM PBX product lines to software and services-based solutions. It's hard enough for one company to manage a massive product transition of their core products, but to manage two is a daunting task. Thomas believes that since market share is nearly mutually exclusive, then each firm can transition their products at their own pace in their respective markets. Overhead may be high during this transition period but it can be managed.

Product Rationalization: Both Siemens and Nortel are building and rolling out software-based communication solutions; these efforts would have to be rationalized, creating intense discussions between engineering, sales and marketing groups that could take eighteen to twenty-four months to sort out.

Culture Management: Managing product transitions and rationalizations while at the same time combining Canadian and German cultures is no small task. As I have grown older, I have placed a larger weight on cultural differences between organizations because it is the environment in which one works. The flow of the day, how managers talk with employees, how employees care for and talk with customers, the prioritization of product features are all derived from an organization's culture. Culture management will be a huge task in this combination.

Management Skill Level: It's not clear that Nortel would be able to manage this combination. If history predicts the future, Nortel did acquire Bay Networks back in the late 1990s for approximately $2B and successfully managed this purchase's value down to a $400M asset.

Most of the above issues would also be present if Nortel was replaced with Avaya or Alcatel-Lucent. Alcatel-Lucent does now have experience in large merger management and their products are primarily service provider focused. Avaya, while privately owned by two financial sponsors would have the same issues, but there are two wild cards here that could make them a better fit for Siemens. First, Charlie Giancarlo, an expert at combining companies thanks to decades at Cisco, is now running Avaya. As Avaya has been a private firm for nearly a year now, a three way financial sponsor of Silver Lake, TPG and Cerberus Capital creating a global enterprise communications concern would solve the management skill level and culture management issues.

I'd like a software company such as Citrix to pick up Siemens. Citrix with its large market share in the thin client and collaboration market would gain value by Siemens' OpenScape UC, offering both communications and a communications development platform for its customers. This combination would accelerate Siemens' transition to a software and services concern thanks to Citrix's knowledge and understanding of software licensing and distribution. It would place Siemens in the middle of the collaboration market, expand Citrix's European market position, and provide Siemens instant access to a large developer community, all without the above issues, thus allowing Siemens to focus on value creation verses rationalization. But the group did not view this option favorably at dinner. In a few days we'll all find out if it was me or the others who were drinking too much wine while admiring the big orange moon over Vienna.