Avaya Sale to TPG/Silver Lake May Be Imminent -- WSJ and NYT

Private-equity firms TPG Capital and Silver Lake Partners are the frontrunners to purchase telecom-equipment company Avaya Inc. for about $17/share (or $20/share [Light Reading], the Wall Street Journal and New York Times report, citing people familiar with the matter. The deal could be announced as early as today, but it could easily fall through, or a third-party such as Nortel Networks (with whom sources say Avaya has talked over the last month) could emerge. Avaya has a market cap of over $7 billion, $829 million in cash, and no debt. The deal would be the second private-equity takeout of a telecom firm: In May, wireless carrier Alltel Corp. was taken out by TPG Capital and the private-equity arm of Goldman Sachs Group Inc. The Journal says more telecom deals are likely to emerge because of the industry's high cash/low debt balance sheets. A former Lucent unit, Avaya's equipment and technology are used to migrate traditional corporate phone traffic to internet-based networks. About 50% [--WSJ or 33% NYT] of its revenue is from long-term service contracts, though the company warns that as these expire, customers may demand lower fees. Avaya shares closed after-hours at $17.18 on Friday, up 25% from a week earlier when buyout rumors first surfaced.

Sources: Wall Street Journal, New York Times, Light Reading
Commentary: Avaya: Report Company Close To $9B-Plus Sale • Is Nortel Eyeing Avaya? • Will Avaya Dance with Nortel, Cisco, or Silver Lake?
Stocks/ETFs to watch: Avaya Inc. (AV), Nortel Networks Corp. (NT), Alltel Corp. (AT), Goldman Sachs Group Inc. (GS). Competitors: Alcatel-Lucent (ALU), Cisco Systems Inc. (CSCO), Plantronics Inc. (PLT). ETFs: iShares Goldman Sachs Network Index Fund (IGN), PowerShares Dynamic Networking (PXQ)

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