All, the negative press of late is NOTHING compared to what will be disclosed soon. We will soon wish to rewind back to this week when the press is about general investigations and/or negotiations with the debt lenders. That is why any marketing hype or hopeful language around CEO driving a turnaround is wasted space.
Whats Ahead?
1. Disclosure of Whistleblower-- Is it a Board Member? A Partner who was asked to violate Sarbanes Oxley (lots of rumors of partners who received direct JC phone calls requesting they help him cook the books), an Avaya Leader, an Avaya Ex-Sales Leader (DP would surely want to stick it to JC and Avaya). An Activist Investor who owns more than 5%? The possibilities are endless. They have only disclosed that the board received a letter. There may be more. There may be folks who reported concerns directly to the Feds or NYSE. They wont disclose who, yet they will likely have to share the context of the complaint which would indicate if it was internal or external.
. FINAL QUARTERLY NUMBERS (Q1-Q3) -- Now that finances are being investigated, they will have to go back and audit all quarters. There is a reason they are delaying final Q3. Those final numbers will disclose that Q2 and Q1 were falsified in some form. And once the final #s are released is when the world will learn there is little one can do to save Avaya.
**3. SEC ** -- Notice the SEC has been quiet. This is likely due to their active investigation. There are likely Securities Fraud charges pending. They are likely speaking directly with personal legal counsel for CEO, CFO, COB and CRO, along with Kirkland Ellis (Avaya's counsel of record). They are also trying to assess how much blame is related to the independent auditor PwC vs Avaya. Don't forget, ENRON scandal also took down their Accounting Firm of record, Arthur Anderson.
4. Loan Owners/Investors -- They want to drive Avaya to default, at which time they can manage the outstanding debt, sell it and have more control than being hijacked by Avaya. They don't want to drag this debt out, and will be willing to lose money just to trade/transact and get the Avaya debt off of their books as soon as possible.
5. Buyout -- There is value to others in some of Avaya's base. In order to get to a formal offer, Avaya's books will be heavily audited and reviewed. This will take time. So it is a race to try to open up books for proper due-dilligence before it turns to Bankruptcy, as the courts will hold up a lot once it gets to that place. Add in all of the legal investigations above, and it is a significant legal and auditing challenge to line up a buyer before BK becomes a reality. It is a messy race against time.
BUCKLE UP
2 replies (most recent on top)
Activist Investors who own more than 5%?
We now have one that owns over 13% (not clear if they owned a lot prior or if recent shares were all net new. I'm sure that's easy to locate).
I believe that is the most telling news. There will now be a non-insider to question, challenge, and push!
They have 3 1/2 weeks to report earnings and they can survive til mid-Dec when they run out of operating cash given current headcount levels (~13,000)... $85M burn rate per quarter translates to 1500-2000 headcount annually... So the new CEO better react immediately - cut headcount and I'm sure the portfolio of products will be surgically cut big time...
But if they prove the books were cooked - well, all bets are off and all we can say is - "it was a nice 125 yr run in the telecommunication industry"... So sad...