* Talks with other potential buyers continue -sources
* Bid seen at $1.3 bln -sources
* Siemens Enterprise Communications not out of running
By Nicola Leske and Nadia Damouni
FRANKFURT/NEW YORK, July 6 Private equity firm Permira has emerged as the frontrunner to buy a collection of businesses put up for sale by telecom gear maker Alcatel-Lucent ALUA.PA, sources familiar with the situation told Reuters.
The crown jewel of the sale is Genesys, which sells software for the operation of call centres and video conferencing and is attractive for its high margins.
"Permira is the lead horse," one source said. It is offering $1.3 billion and the process is expected to last another month.
Permira and Alcatel-Lucent declined to comment.
Industrial players Avaya [AVXX.UL] and Cisco (CSCO.O) had considered bidding but bowed out and, while others had put in higher offers, Alcatel is favouring Permira because its proposal is seen as carrying less risk, the sources said.
Genesys was acquired by Alcatel in 2000.
The other businesses, which bring in more revenue but have lower margins, include IP Telephony and an ethernet switching business comparable with Hewlett-Packard's (HPQ.N) networking switches unit.
Siemens Enterprise Communications (SEN) was previously considered the frontrunner, with the best fit from an industrial point of view, but has been rejected for the time being because of the complicated structure of its offer, the sources said.
In spite of talks with Permira, Alcatel is in loose contact with other potential buyers including SEN, according to the sources.
Siemens (SIEGn.DE), which owns 49 percent of SEN, declined to comment.
The remaining 51 percent is owned by Los Angeles-based private equity firm Gores Group, which had tried unsuccessfully to bring more partners into the bid, including KKR (KKR.N).
However, Alcatel is asking for cash and, among other things, employment guarantees for staff in France, which has put off industrial bidders concerned about the inflexibility of French labour law.
Most of the employees that would be affected in France work for the lower-margin businesses, according to union sources.
The entire package of businesses being sold has annual revenue of around 1 billion euros ($1.44 billion), according to analyst estimates.
Alcatel-Lucent's unions are worried about job cuts and the prospect that the businesses could be carved up. They organised a stoppage last week at French sites to protest the plan.
The sale is part of Alcatel-Lucent CEO Ben Verwaayen's effort to turn around the company by focusing on the core business of selling gear to major telecom operators such as Vodafone Group (VOD.L) and AT&T (T.N).
Verwaayen took the helm of Alcatel-Lucent in September 2008 to rescue the Franco-American company after a value-destroying merger in 2006. The potential sale would come in the third and final year of Verwaayen's promised turnaround of the group.
Qatalyst Partners, founded by former Credit Suisse investment banker Frank Quattrone, is advising Alcatel-Lucent on the sale, sources have said.
(Additional reporting by Victoria Howley and Simon Meads in London, Leila Abboud in Paris; Editing by David Hulmes)
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