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Case Studies

Peter A. Sokoloff & Co. regularly analyzes transactions which occur within the industries covered. An archive of these case studies is kept online as a courtesy to our colleagues. To receive by e-mail new case studies as they are prepared, please e-mail [email protected] with your contact information.

Archives > Transaction Case Study 25

Avaya to be acquired by Silver Lake and TPG Capital

Dear Colleague,

On June 4, 2007, Avaya Inc. (NYSE:AV) announced that it has entered into a definitive merger agreement with two large private investment firms, Silver Lake and TPG Capital, for approximately $8.2 billion or $17.50 per common share.

New Jersey based, Avaya, with revenues of $5.28 billion and EBITDA of $679 million (ttm), provides communication systems, applications, and services worldwide to enterprises in the financial, manufacturing, media and communications, professional services, health care, education, and governmental sectors. More than 1 million businesses worldwide, including more than 90 percent of the FORTUNE 500®, use Avaya solutions for IP Telephony, Unified Communications, Contact Centers and Communications-Enabled Business Processes.

Avaya was spun off from Lucent in 2000 and received an investment of $400 million from private equity firm, Warburg Pincus.

Under the terms of the proposed agreement, Avaya shareholders will receive $17.50 in cash for each share of Avaya common stock they hold. This represents a premium of approximately 28 percent over Avaya's closing share price of $13.67 on May 25, 2007, the last trading day prior to published reports speculating about a potential transaction. The premium is also approximately 33 percent over Avaya's average closing share price of $13.17 during the 30 trading days ending May 25th.

The transaction price of approximately $8.2 billion and Avaya’s proposed Enterprise Value of $7.38 billion translates to 10.86x EBITDA and 1.4x revenue. It should be noted that Avaya has approximately $829 million in cash and only $11 million in debt.

"Our interests are aligned with the long-term interests of Avaya's customers and employees," said David Roux, a co-founder and managing director of Silver Lake. "We have full confidence in Avaya's excellent management to build on the company's remarkable technology and history, which spans more than a century, to deploy advanced IP communications solutions as a source of competitive advantage for customers."

Avaya's board of directors has approved the merger agreement and resolved to recommend that Avaya shareholders adopt the agreement. "After an extensive review of Avaya's strategic alternatives with Avaya management and our financial advisors, the board of directors of Avaya determined that this transaction with Silver Lake and TPG provides the best value for Avaya's shareholders," said Phil Odeen, non-executive chairman of Avaya's board of directors.

"In addition to delivering compelling value for our shareholders, the partnership with Silver Lake and TPG also creates clear value for Avaya employees and customers," said Louis J. D'Ambrosio, president and CEO, Avaya. "The investment in our people and technology and the operating structure will enable us to extend our technology and services leadership and continue to deliver the "gold standard" of communication solutions in the industry."

The transaction is expected to be completed in the fall of 2007, subject to receipt of shareholder approval and customary regulatory approvals, as well as satisfaction of other customary closing conditions. There is no financing condition to the obligations of the private equity group to consummate the transaction, and equity and debt commitments for the merger consideration have been received.

The merger agreement provides for Avaya to solicit proposals from third parties during the next 50 days. In addition, the company may, at any time, subject to the terms of the agreement, respond to unsolicited proposals. Avaya does not intend to disclose developments with respect to the solicitation process unless and until its board of directors has made a decision.

We hope that you find this feature from Sokoloff & Co. interesting, informative and useful.  We welcome your comments and suggestions.

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