(Reuters) - Telecommunications equipment and software vendor Avaya Holdings Corp (AVYA.N) is considering an all-cash offer from private equity firm Clayton Dubilier & Rice LLC (CD&R) as an alternative to a potential merger with Mitel Networks Corp, people familiar with the matter said on Tuesday.
Avaya shares jumped on the news and closed 12% higher at $13.95, giving the company a market value of $1.55 billion.
Avaya has been in talks with Mitel, a privately-held peer, for months about a deal that would value it higher than what private equity firms have offered, but would require Avaya shareholders to accept stock in the combined company. The Wall Street Journal reported on Mitel’s offer in April.
Now Avaya is seeking to negotiate a sale to CD&R that would allow all its shareholders to cash out and value it at a significant premium to where its shares are trading, even though the headline price would be lower than a deal with Mitel, the sources said.
Avaya’s debt pile of $3.2 billion and its challenging business outlook have made a leveraged buyout difficult for many private equity firms. Seeking an edge, CD&R has been in talks about partnering on its bid with RingCentral Inc (RNG.N), a provider of enterprise cloud solutions, one of the sources said, cautioning that there is no certainty of such a deal.
It is still possible that Mitel prevails with its offer. Avaya will decide which transaction it wants to pursue in the coming days, the sources said.
Avaya CEO James Chirico told investors on the company’s latest quarterly earnings call on Aug. 13 that he expected the sale process to conclude in the next 30 days. Reuters first reported in March that the company was considering a sale.
Avaya and CD&R declined to comment, while Mitel and RingCentral did not immediately respond to requests for comment.
Based in Santa Clara, California, Avaya is one of the world’s largest providers of telephony systems. It was spun off from Lucent Technologies Inc in 2000, which used to be part of AT&T Inc (T.N).
Avaya, which competes with Microsoft Corp (MSFT.O) and Cisco Systems Inc (CSCO.O), has been trying to boost its business of providing communications software to companies, as its hardware business became more commoditized and dated. It has also been seeking to broaden its offerings of cloud-based communications solutions.
The deliberations come less than two yeas after Avaya emerged from bankruptcy protection, the legacy of a previous leveraged buyout, its $8.3 billion sale to private equity firms TPG Capital and Silver Lake in 2007.
Mitel was acquired last year by private equity firm Searchlight Capital Partners LP for $2 billion.
Reporting by Greg Roumeliotis in New York; Additional reporting by Joshua Franklin in New York; Editing by Nick Zieminski and David Gregorio