A group of disgruntled shareholders has launched a class action lawsuit against Avaya, alleging that the IP communications firm "recklessly disregarded" crucial financial information and failed to disclose the true cost of its recent merger with Tenovis, Germany's second largest telephony vendor.
US law firm Schiffrin & Barroway LLP issued the following statement: "Notice is hereby given that a class action lawsuit was filed in the US District Court for the District of New Jersey on behalf of all securities purchasers of Avaya Inc between October 5 2004 and April 4 2005 inclusive (the 'Class Period')."
The complaint charges Avaya, and a group of the firm's senior employees, with violations of the Securities Exchange Act of 1934.
More specifically, it alleges that the firm "failed to disclose and misrepresented" certain "material adverse facts which were known to defendants or recklessly disregarded by them".
According to the complaint, the cost of the Tenovis merger was greater than represented, and as such adversely affected Avaya's earnings in fiscal 2005.
It also charges that, owing to problems with the Tenovis merger, management had "limited visibility" into Avaya's channels of revenue.
In addition to the specific complaints pertaining to the merger, it is also alleged that the implementation of Avaya's newly formulated go-to-market model in the US was "disrupting the company's direct and indirect sales channels".
It also accuses Avaya of not stating clearly enough that the US markets were not readily embracing the migration path to IP PBX products.
Taking these allegations into account the class action claims that the firm's projections about revenue growth of 25 to 27 per cent for its fiscal 2005 "lacked in any reasonable basis".
On 19 April 2005, Avaya reported income from continuing operations of $36m, or seven cents per diluted share, in the second fiscal quarter of 2005. The company's performance was below expectations.
The news shocked the US market. Avaya shares fell $2.68, or 25.07 per cent, on 20 April 2005 to close at $8.01 per share.
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