Avaya Inc. wants to merge with a rival equipment maker or sell to a private equity firm, according to an article in Tuesdays Wall Street Journal.
Nortel Networks is rumored to be the top potential buyer. The WSJ reported, however, that Nortel and Avaya have not been able to agree on terms; that makes a private buyout more likely, said analysts for investment bank UBS in a memo to clients.
Avaya would not confirm whether it is in talks to sell.
We are not commenting on rumor or speculation, said Lynn Newman, a spokeswoman for Avaya.
Nortel spokesman Jay Barta said the same when asked to confirm that the company is trying to buy Avaya.
Still, if the two companies could reach a deal, it would be consistent with Nortels increased focus on enterprise and professional services, UBS analysts said. Such a scenario would give Nortel a 30 percent share in the enterprise voice market as compared to 14 percent each for Cisco Systems Inc. and Siemens. It also would boost Nortels services expertise, said analysts.
In addition to financial terms, the two companies must consider product and employee assimilation, UBS noted. Avaya employs 20,000 people, while Nortel claims 34,000. Those numbers, plus product overlap, would make such a deal very high in risk given the integration challenges, UBS analysts wrote.
UBS analysts said the M&A news comes as no surprise, given Avayas recent stock rally, solid cash flow and strong market presence.
Wall Street traders seemed to react favorably to the news.
Avayas stock was up 14.58 percent during mid-day trading Tuesday, at $15.66 per share. Nortel was going for $26.13, up 34 cents.