Network equipment manufacturer Avaya is talking with private equity firms and rival companies about a sale of all or part of itself, according to company executives. Avaya's strong cash flow, lack of debt and increasing profit margins have reportedly attracted the interest of competitors Cisco Systems and Nortel Networks as well as equity buyout company Silver Lake Partners. Avaya, formerly a division of Lucent, provides equipment that moves traditional phone systems onto integrated IP network platforms that provide voice, email, conference, IM and video communications. About half Avaya's revenue is derived from long-term service contracts. Company executives said Monday that although talks about a sale are proceeding, negotiations are at an early stage and a sale will not necessarily take place. Last year, Avaya posted net profit of $201 million on revenue of $5.12 billion. The deal, if it occurs, will follow last week's agreement by wireless provider Alltel to be bought out by the Texas Pacific Group and a unit of Goldman Sachs for $27.5 billion. Last year, telecom equipment manufacturers Alcatel and Lucent merged in an $11.6 billion transaction.
Sources: Wall Street Journal, News.com, MarketWatch
Commentary: Avaya Inc.: Value Act Capital Cuts Stake to 3.9% • TPG, Goldman Private Equity Buy Alltel for $27.5 Billion • The Marriage of Alcatel-Lucent: One Step Closer to a Telecommunications Monopoly
Stocks/ETFs to watch: Avaya Inc. (NYSE:AV), Cisco Systems, Inc. (NASDAQ:CSCO), Nortel Networks Corp. (NT). Competitors: Alcatel-Lucent (ALU). ETFs: iShares Goldman Sachs Networking (NYSEARCA:IGN), PowerShares Dynamic Networking (NYSEARCA:PXQ)
Conference call transcripts: F2Q07
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