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6/9/2011
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Avaya Files For $1 Billion IPO

The company plans to pay down long-term debt, but an IDC analyst says it should spend some of the loot on product development.

IP telephony vendor Avaya filed with the Securities and Exchange Commission on Thursday to launch an initial public offering that would raise around $1 billion, and the company said its top priority is to pay down long-term debt, presumably the debt from its $900 million cash acquisition of Nortel Networks a year and a half ago.

The company did not say when the common stock would go public or at what share price in a news release announcing the filing. It said that the proceeds would be used to, "among other things, pay down certain long-term indebtedness."

Avaya's acquisition of Nortel's Enterprise Solutions, Government Solutions, and DiamondWare business units was completed in late 2009 after Avaya prevailed in a bidding war with Siemens AG to acquire the Nortel assets out of a bankruptcy court. Some of the IPO proceeds could and should also go to further product development to keep Avaya competitive in the IP telephony and emerging unified communications market, said Richard Costello, a senior analyst in the Enterprise Communications Infrastructure research unit of IDC.

"I can certainly see that they could use the cash for R&D and investment … in addition to [paying down] the debt that they have," Costello said.

Avaya has been a strong player in IP telephony, usually switching places with Cisco Systems for first and second place in that market, he added. An IDC report put Cisco's 2010 share in IP PBX revenue at 28.6% to Avaya's 26%. But in IP PBX unit sales, Avaya leads with a 22.1% share to Cisco's 18.3%.

Despite its competitive strength, sales revenue has been flat the last few years, so Avaya may also need the IPO funds to spur revenue growth.

"The numbers have not been good and they've basically been cutting as a way of sustaining themselves, but not actually growing revenue the last couple of years. They want to change that as well," Costello said.

Avaya has been aggressive, though, in pursuing the unified communications (UC) market that combines voice, video conferencing, messaging, e-mail, document sharing, and collaboration tools so workers in distant locations can work together on a project. It recently introduced its Avaya Aura UC platform that is not just about behind the scenes networking equipment, but a complete desktop system. It also introduced a business-focused tablet computer that can be used to run Aura video conferencing and related apps.

Although UC brings Avaya into competition with giants tech vendors like IBM and Microsoft, its products have been "well-received" by industry observers, Costello said.

The IPO will be handled by Morgan Stanley & Co. LLC, Goldman, Sachs & Co., J.P. Morgan Securities LLC, Citigroup Global Markets Inc., Deutsche Bank Securities Inc., BofA Merrill Lynch, Barclays Capital Inc., UBS Investment Bank and Credit Suisse Securities (USA) LLC.

This will be Avaya's second stint as a public company. It was spun off as a separate public company in 2000 from Lucent, formerly known as AT&T Technologies. But it was taken private in 2007 when acquired by TPG and Silver Lake Partners for $8.2 billion.

Employees have more ways to communicate than ever, but until the mishmash of tools gets integrated, productivity will suffer. Also in the new, all-digital issue of InformationWeek: A buyer's guide to enterprise social networking. Download it now. (Free registration required.)

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