Avaya
(NYSE:AV) share jumped $1.94, or 14.19%, to $15.61 after reports
surfaced that the company is in buyout talks with private equity firm
Silver Lake Partners. The Wall Street Journal report also said that
Nortel could step up as a bidder, citing people familiar with the
situation.
These days private equity buyout rumors tend to
dominate the market headlines and separating fact from rumor is
imperative to success. So, what facts support an Avaya buyout? Well,
the company was already in buyout talks with Nortel just last month,
but the deal fell through after the two parties could not agree on the
cash/equity deal structure. The company also has strong cash flows and
relatively little debt, making it an ideal acquisition in the
fast-growing VOIP market. And finally, Avaya also postponed its May
31st analyst conference, which many see as an indication that the
company may very well be in buyout talks.
Combined, these series
of events along with a WSJ report citing an exact hedge fund as suitor
gives some credibility to this rumor. Given the interest by Nortel,
this potential acquisition by a financial buyer could be an attempt to
take over the company simply to resell it at a higher multiple to
larger strategic buyers in the near future. This is likely why Nortel
or other strategic buyers could place their own bids to attempt to get
the company for cheaper. Regardless, this is definitely a stock to
keep an eye on as the situation unfolds!
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