The victory of private-equity buyers underscores the continued market power of buyout shops, which are able to trump strategic buyers on deals by using cheap debt and reducing their investment-return thresholds.
The deal also would signal the increased interest of private-equity firms in telecommunications equipment, an area in which many vendors, like Avaya, generate steady cash flow while taking on little debt.
Avaya has a market capitalisation of more than $7 billion with $829 million of cash and no debt. The deal is expected to close in the autumn.
In an interview, Avaya Chief Executive Louis J. D'Ambrosio said he intends to stay, but he declined to speak for other top management members. "Avaya stays as Avaya," he said. "We'll continue to build the leadership we have."
There were at least two industry players expressing interest in Avaya, including Nortel Networks, according to people familiar with the matter. Avaya and Cisco also held a meeting in Las Vegas more than a month ago, according to a person close to Avaya.
There was one other big equipment maker expressing interest in the company, according to the person. That may have helped Avaya get a richer premium than some analysts had anticipated for a stock that had already been buoyed by weeks of takeover rumours. Both Cisco and Nortel declined to comment.
For its fiscal year ended Sept. 30, 2006, Avaya posted net income of $201 million on revenue of $5.2 billion, with a profit margin of 4.2%.