Warburg portfolio company in talks with Silver Lake

Warburg Pincus is the largest shareholder in US telecom products company Avaya, which is reportedly in take-private talks with Silver Lake Partners.

Silicon Valley-based Silver Lake Partners is reportedly in talks to buy all or part of Avaya, a telecom products manufacturer that spun out of Lucent Technologies in 2000.

Sources familiar with the discussions told The Wall Street Journal buyout talks fell through earlier this month with Nortel Networks, a similar telecom equipment manufacturer based in Canada.

Avaya has a $7 billion market cap, and the rumoured talks sent share prices soaring more than 15 percent Tuesday, to close at $15.76 on the New York Stock Exchange.

Private equity has played an integral role in Avaya’s history. Via various investment rounds, US firm Warburg Pincus has come to be the firm’s largest shareholder: as of 30 June 2006, Warburg owned approximately 23 percent of Avaya’s stock. Warburg declined comment.

Avaya also bought German telecom equipment maker Tenovis from Kohlberg Kravis Roberts in 2004.

The telecom sector has seen a spate of recent, record buyout activity. In May, Goldman Sachs and TPG agreed to buy US wireless provider Alltel for $27.5 billion – the largest-ever private equity deal in the sector. Pundits predict the deal will soon be topped by a buyout of Canadian telecom firm BCE; Cerberus Capital Management, KKR and a consortium of Canadian pension funds may bid upwards of C$31 billion ($28.4 billion).