Friday, September 28, 2007

Nothing stops the deal frenzy

And you thought the liquidity squeeze following subprime fiasco has affected the PE appetite for leveraged buyouts… Hardly.

Bain Capital, a private equity firm, decided the 28-year-old Network equipment maker 3Com Corp. still has enough potential to justify a buyout carrying a hefty 44 percent premium to the stock's Thursday closing price of $3.68 per share. At one point in 2000, its shares briefly rose above $100 apiece. For 3Com the $2.2 billion buyout by Bain would mean giving up its independence, but it's gaining freedom from the whims of the market and a chance to expand in China. The cash deal announced on Friday also gives Huawei Technologies, China's largest manufacturer of telecommunications equipment, a minority stake in the technology pioneer - something that could improve its prospects in Asia and raise eyebrows in Washington. 3Com, which faces brutal competition from Cisco Systems Inc. and others, is now a shadow of the high-flying star it became in the late 1990s technology boom. 3Com now counts more than 6,000 employees in over 40 countries, and annual revenue of $1.3 billion.

Here’s yet another and bigger deal. Shareholders of communications and software company Avaya Inc. voted to take the company private Friday, selling it for $8.2 billion to two private equity groups - Silver Lake and TPG that valued its shares at $17.50 apiece. The deal is expected to close by end October. Avaya, based in Basking Ridge, N.J was spun off from the former Lucent Technologies Inc. in September 2000. Shares have jumped more than 25 percent since word of the deal leaked in late May. The deal comes with its set of strings too. The agreement also provides a 50-day "go-shop" provision for Avaya to solicit proposals from third parties. If it ends the merger agreement after receiving a superior proposal from a third party, Avaya must pay Silver Lake and TPG Capital an $80 million termination fee. Also, Silver Lake and TPG Capital must pay a $250 million fee to Avaya if the merger agreement is ended under certain circumstances.

So, la, la, la time for PE firms has not fizzled out. The party is on in the buyout street… Will it have an impact on Avaya Global connect, the Indian company…? Jury is still out.

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