What happened

Shares of Avaya Holdings (NYSE:AVYA) soared more than 35% on Monday morning following a media report that the company is considering a private equity buyout offer that values the telecom equipment vendor at nearly $5 billion, including assumed debt.

So what

Avaya, one of the world's largest providers of office telephone systems, has had a troubled history in recent years. The company is just 15 months removed from exiting bankruptcy protection after its previous leveraged buyout, an $8.3 billion sale to TPG Capital and Silver Lake, ran into trouble in 2016. More recently, in February, it overhauled its management team after reporting fiscal first-quarter results that underwhelmed investors.

Stock market chart.

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Reuters reported on Monday that an unnamed private equity firm has offered to buy the company for more than $20 per share, a significant premium to Avaya's $13.21-per-share Friday close. The rumored deal would value Avaya's equity at about $1.5 billion, with Avaya also carrying $3.2 billion in debt as of the end of December.

Avaya has not yet responded to the report.

Check out the latest earnings call transcript for Avaya Holdings.

Now what

It's important to note that the report is only a rumor and that even if it is accurate, there is no guarantee an agreement will be signed. Avaya faces competition from heavyweights including Cisco Systems and Microsoft in its core business and has a burdensome debt load to contend with. Shares of the company were down more than 35% in the past six months prior to the buyout report.

The rumored $20-per-share-or-higher buyout price would suggest at least 10% in additional upside for the shares if a deal does go through, but if the deal is not consummated, Avaya shares seem likely to drop to their level from last Friday. Given the challenges the business faces and how far the shares have already jumped on the reports, it's dangerous to rush in at this moment.

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