UBS: Nortel Loses Out On Avaya To Private Equity

Nortel Networks Corp. (NT) has lost out to private equity in the bidding for U.S. telecommunications equipment maker Avaya Inc. (AV).

Private equity groups TPG Capital and Silver Lake Partners are paying approximately US$17.50 per share for Avaya.

Shares of Avaya have jumped roughly 20% in the past week on speculation about a possible tie-up with Nortel or a buyout.

While some didn’t like the prospect of a merger between the communication equipment makers because of their different product offerings, UBS analyst Nikos Theodosopoulos thinks synergies from a merger could have reached US$250-million over several years.

However, he does acknowledge the challenges.

“We believe differences in products, channel strategy, and services likely limit the potential for synergies,” Mr. Theodosopoulos said in a research note, adding they would be in the range of US$50 to US$100-million in the first year after the merger.

He thinks deal with Nortel would likely have been financed with a combination of cash and stock.