On July 20th I highlighted the "Dream Come True" in Avaya (NYSE: AV). At the time, I thought the $17.50 acquisition price could be bested by a competing bidder and the current acquisition price served as a floor. Since this post the stock has managed to trade off several percentage points but I believe the situation has only become more attractive.
The deal is still expected to close in the fall. Assuming the deal closes December 1st (most likely a very conservative estimate) the current annualized rate of return on the deal is roughly 16% -- a very attractive yield if you believe the deal should go through.
Should you believe in this deal's prospects? In my opinion, the answer to this question is an emphatic yes. Interestingly, two of the company's executives agree as they recently bought $1.4 million of stock going into this deal. As a Wall Street Journal article reports [subscription required] today, insiders rarely buy stock before their company goes private. This buy exemplifies confidence in the deal's prospects from the inside. The buyers -- TPG and Silverlake -- have already arranged financing, according to the WSJ piece.
If the chances of the deal being completed remain good than why would the stock sell-off, you might ask. I think the answer to this question is two-fold. First, nearly every company in the process of an LBO sold off as the credit market showed signs of weakness during the last two months. Additionally, many funds have been cutting their merger arb exposure, likely forcing liquidations in Avaya, among other companies.
Avaya is still a particularly interesting situation. At the current price, you are set to earn a 4-5% absolute rate of return on your money (roughly in-line with Treasuries and CDs). But you would expect to make this in 2-4 months instead of twelve. With the company's executives loading up on shares and the private-equity buyers already having financed the deal, I think the likelihood of this deal being completed remains strong.
Last updated: February 13, 2012: 07:10 AM
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Reader Comments (Page 1 of 1)
10-19-2007 @ 4:37PM
Henry W. Bagby said...
if this is such a great deal 'why not keep av.!!!!
11-04-2007 @ 10:31AM
bigtoe6 said...
Is AV not trading, It comes up N/A on my page???/
11-06-2007 @ 2:17AM
Mike Rutigs said...
So ,we''l get approx 17.50 a share?? when does this happenand when do we get notified?? Since they are taking it private and its already off trading sites, I guess there's no way of buying more shares. Will they just send a check, and when???
11-06-2007 @ 11:27AM
E.B.Hancock said...
What's happening to Avaya? Will we get TPG and/or Silverlake stock or will we get money?
11-10-2007 @ 7:15PM
J.J Vaughn said...
AVAYA Inc. was a spin off of something before 2002. What was it and the price at the time?
11-24-2007 @ 9:01AM
Michael Boland said...
AV came from Lucent. I don't remember the exact price abut Lucent was trading in the 2-3 range at the time.