UBS: Nortel Loses Out On Avaya To Private Equity

Includes: AV, NT
by: FP Trading Desk

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