Avaya (AV): About To Be Sold

It appears that Avaya (AV), the enterprise telecom equipment maker, is about to be sold to Nortel (NT) or private equity firm Silver Lake. The stock trades at about $16 and it looks like  the sale price may be $20, according to Light Reading.

If both Silver Lake and Nortel are making similar offers, the Nortel bid makes more sense. NT is already in closely related industries selling equipment to telecom giants like Verizon and BT. Avaya is a piece of the old Bell Labs and then Lucent.

According to The Wall Street Journal: "Avaya’s equipment is at the heart of corporate telecommunications systems, helping direct voice and data traffic at many of the nation’s largest corporations."

As a standalone, Avaya probably could not cut much in the way of costs, even as a private company. But in a combination of two public companies, it would be hard to imagine that Nortel could not take out some of AV’s nearly $5 billion in annual expenses. In the last quarter, Avaya’s operating income was $81 million. A consolidation with Nortel could increase that by 50% by taking out public company and general & administrative costs.

Nortel’s shareholders would have to approve. It would give the company competitive advantages against Motorola and Alcatel-Lucent.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.