Merging with a rival like Nortel Networks or Alcatel-Lucent could have been more advantageous for Avaya, said communications equipment analyst Bill Choi at Jefferies & Co. Nevertheless, the $8.2 billion Sierra Holdings -- a subsidiary of Silver Lake Partners III and TPG Partners V -- offered for the firm is a good price.
AP | 06/06/07
The US$8.2 billion private investors are offering for Avaya (NYSE: AV) Latest News about Avaya is a good price for shareholders of the phone systems maker and likely the most they will get, but merging with a rival could have been more strategically advantageous, an analyst said Tuesday.
A day after Avaya agreed to be bought out, its shares changed hands Tuesday at a furious rate -- normal right after a deal is announced -- and set a new 52-week high as investors sought quick gains or snapped up shares to hold for a sure profit when the deal is completed. Shares rose 31 cents, or 1.9 percent, to $17.03.
Meanwhile, Standard & Poor's Ratings Services late Tuesday lowered Avaya's corporate credit rating by two notches to "B+" and said the rating could be lowered further because the deal would increase Basking Ridge, N.J.-based company's debt dramatically.
The Agreement
The buyout agreement gives Avaya 50 days to develop a better deal than the $17.50-per-share offer from Sierra Holdings, a subsidiary of Silver Lake Partners III and TPG Partners V. Both are major private equity funds that invest in technology companies.
"It's a good deal for investors," said communications equipment analyst Bill Choi at Jefferies & Co.
Avaya spokesperson Jim Finn said Tuesday he could not discuss whether there are any other potential offers in the wind. He said the company expects the deal will close in the fall, after routine approvals from regulators.
If Avaya backs out, it must pay the consortium a breakup fee of $80 million to $250 million, depending on the circumstances.
The company makes office telephone systems and has patents for transforming traditional phone and data systems into integrated Internet Protocol-based networks.
A Multiyear Transition
Choi said Avaya and competitors are facing a multiyear transition in their business, with sales Free White Paper - What Retailers Should Know about M-Commerce likely to be bumpy as their customers move from the current telephone technology to Internet Protocol, the communications standard of the Internet, to boost their productivity Get the facts on wireless solutions suited to your industry..
He said private investors, who don't necessarily demand strong results from their holdings every quarter, can ride out that transition and wait for the market to stabilize, then take their profits.
The downside, he said, is that Avaya will be the same size after the deal and likely will have more debt. He expects the consortium to do a leveraged buyout, borrowing up to $5.5 billion of the purchase price.
Choi said Avaya would gain scale in a merger with a company with similar businesses.
"We think ultimately Avaya could have been better served by a strategic acquirer," Choi said, with Nortel Networks (NYSE: NT) Latest News about Nortel Networks and Alcatel-Lucent (NYSE: ALU) Latest News about Alcatel-Lucent being good fits.
Either way, he thinks Avaya will see further layoffs Latest News about layoffs, offset somewhat by hiring people with expertise in IP technology.
Aligned Interests
Silver Lake cofounder David Roux said his firm's interests are aligned with those of Avaya's customers and employees.
"We have full confidence in Avaya's excellent management to build on the company's remarkable technology and history," he said in a statement.
Avaya shares have been rising fairly steadily in recent weeks amid buyout rumors; the stock traded around $12 in April. The $17.50-per-share offer is a 28 percent premium over the closing price on May 25, the last trading day before reports Avaya was negotiating to sell all or part of the company.
AP | 06/06/07
The US$8.2 billion private investors are offering for Avaya (NYSE: AV) Latest News about Avaya is a good price for shareholders of the phone systems maker and likely the most they will get, but merging with a rival could have been more strategically advantageous, an analyst said Tuesday.
A day after Avaya agreed to be bought out, its shares changed hands Tuesday at a furious rate -- normal right after a deal is announced -- and set a new 52-week high as investors sought quick gains or snapped up shares to hold for a sure profit when the deal is completed. Shares rose 31 cents, or 1.9 percent, to $17.03.
Meanwhile, Standard & Poor's Ratings Services late Tuesday lowered Avaya's corporate credit rating by two notches to "B+" and said the rating could be lowered further because the deal would increase Basking Ridge, N.J.-based company's debt dramatically.
The Agreement
The buyout agreement gives Avaya 50 days to develop a better deal than the $17.50-per-share offer from Sierra Holdings, a subsidiary of Silver Lake Partners III and TPG Partners V. Both are major private equity funds that invest in technology companies.
"It's a good deal for investors," said communications equipment analyst Bill Choi at Jefferies & Co.
Avaya spokesperson Jim Finn said Tuesday he could not discuss whether there are any other potential offers in the wind. He said the company expects the deal will close in the fall, after routine approvals from regulators.
If Avaya backs out, it must pay the consortium a breakup fee of $80 million to $250 million, depending on the circumstances.
The company makes office telephone systems and has patents for transforming traditional phone and data systems into integrated Internet Protocol-based networks.
A Multiyear Transition
Choi said Avaya and competitors are facing a multiyear transition in their business, with sales Free White Paper - What Retailers Should Know about M-Commerce likely to be bumpy as their customers move from the current telephone technology to Internet Protocol, the communications standard of the Internet, to boost their productivity Get the facts on wireless solutions suited to your industry..
He said private investors, who don't necessarily demand strong results from their holdings every quarter, can ride out that transition and wait for the market to stabilize, then take their profits.
The downside, he said, is that Avaya will be the same size after the deal and likely will have more debt. He expects the consortium to do a leveraged buyout, borrowing up to $5.5 billion of the purchase price.
Choi said Avaya would gain scale in a merger with a company with similar businesses.
"We think ultimately Avaya could have been better served by a strategic acquirer," Choi said, with Nortel Networks (NYSE: NT) Latest News about Nortel Networks and Alcatel-Lucent (NYSE: ALU) Latest News about Alcatel-Lucent being good fits.
Either way, he thinks Avaya will see further layoffs Latest News about layoffs, offset somewhat by hiring people with expertise in IP technology.
Aligned Interests
Silver Lake cofounder David Roux said his firm's interests are aligned with those of Avaya's customers and employees.
"We have full confidence in Avaya's excellent management to build on the company's remarkable technology and history," he said in a statement.
Avaya shares have been rising fairly steadily in recent weeks amid buyout rumors; the stock traded around $12 in April. The $17.50-per-share offer is a 28 percent premium over the closing price on May 25, the last trading day before reports Avaya was negotiating to sell all or part of the company.
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