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Avaya to Restructure, Lay Off 1,900

Avaya Inc. , a major voice, data network and communications provider, said both its second quarter revenues and losses will fall short of expectations, as it lays off more than 8 percent of its workforce and restructures to save up to $200 million a year. In addition, Warburg Pincus said it would buy $100 million worth of Avaya common stock, and would also convert Avaya preferred stock into common shares.

Avaya said it expects revenues from the second quarter -- its current fiscal quarter -- to be $1.24 billion to $1.28 billion, down from the previously stated range of $1.25 billion to $1.36 billion. The Basking Ridge, N.J.-based company also said it expects the net loss from ongoing operations for the second fiscal quarter to be a loss of $0.06 to $0.10 cents per diluted share, up from the previously stated loss of $0.08 per diluted share.

Currently, the consensus of analysts' estimates for Avaya's loss per share comes in at $0.07, according to a survey by Thomson Financial/First Call.

In addition, Avaya said it would take a restructuring charge of approximately $100 million and lay off about 1,900 workers. The charge "reflects actions it has taken to date this quarter," officials said in a statement.

Avaya said it expects to save approximately $180 million to $200 million with the restructuring and layoffs.

In order to enhance liquidity, strengthen its balance sheet and simplify its capital structure, Avaya said Warburg Pincus Equity Partners will buy 14.4 million shares of Avaya common stock at a price of $6.26 per share, Avaya's common stock closing price last Friday. Also, Warburg Pincus will convert about $438 million of Avaya preferred stock into 38.3 million common shares, and will exercise warrants to buy approximately another 286,000 shares of Avaya common stock.

With all of the stock transactions, Warburg Pincus Equity Partners will own about 53 million shares of Avaya common stock, or approximately 15.5 percent of the total outstanding common shares. Avaya's agreements with Warburg Pincus Equity Partners are contingent on receiving Hart-Scott-Rodino anti-trust clearance and other customary conditions, officials said.

In connection with the Warburg Pincus action, Avaya said it will take a one-time retained earnings charge of approximately $130 million in its second quarter. Bear Stearns acted as financial advisor to Avaya in connection with the Warburg transactions.

Avaya also announced it may seek to offer $100 million in common equity (plus an over allotment option of up to 15%) and is evaluating capital market alternatives to repay its existing bank debt and replace it with longer-term debt.