Avaya faces up to $250 mln break-up fee

NEW YORK (Reuters) - Avaya Inc. (AV.N) agreed to pay up to $250 million to private equity firms TPG Capital and Silver Lake if Avaya, the telecommunications equipment maker, backs out of their acquisition deal, though analysts said Tuesday that a counterbid is not likely to emerge.

The $8.2 billion offer, announced on Monday, is expected to be completed in the fall of 2007, subject to approval by shareholders and regulators.

The break-up fee is $80 million if Avaya decides to accept another proposal in the next 50 days, according to a regulatory filing to the U.S. Securities and Exchange Commission on Tuesday. The fee is $250 million if Avaya backs out of the deal after 50 days, the filing said.

Under the terms of the agreement, Ayaya cannot solicit proposals from additional third parties after July 24, though it can continue discussions with any party that submits a written takeover proposal within the 50 days.

Media reports have previously mentioned Canadian rival Nortel Networks Corp. NT.TO as a suitor. Nortel declined comment.

Avaya's small size compared with rivals like Cisco Systems Inc. (CSCO.O) has long made the company a subject of takeover speculation. Such talk intensified late last month after Avaya postponed an investor conference.

Analysts have said an Avaya-Nortel combination could create a leading vendor that competes more efficiently against giants like Cisco, but many also say Nortel was unlikely to make the move due to the high value of the private equity offer.

TPG Capital and Silver Lake agreed to pay $17.50 per share for Avaya, a 28 percent premium to the closing share price on May 25, when reports about a possible deal began to circulate.

"While Nortel makes the most sense as another leading enterprise telephony vendor in North America, we believe the company will be unable to afford a counter bid at this rich valuation," Jefferies & Co. analyst Bill Choi said in a research note, noting Nortel had one billion dollars in debt.

Avaya's shares closed up 31 cents, or 1.85 percent, to $17.03 on the New York Stock Exchange.

Prudential analyst Inder Singh said that while other parties may still emerge, the existing $17.50 offer was around 24 times his estimate for Avaya's 2008 earnings, a level he thought shareholders should largely welcome.