Avaya saw its share price jump nine per cent following reports that rival Mitel has made a takeover bid.
Bloomberg reported that people close to the matter confirmed that the telecoms giant is considering the bid.
As part of the mooted deal, Mitel would reverse into Avaya and the combined business remain a publicly listed company, according to the report.
Should that happen, the merger would create a telecommunications equipment vendor worth over $5bn (£4.1bn). Mitel believes its offer values the combined company at over $20 per share, the sources said.
Mitel wants to put in $150m of additional money as well as Avaya's cash in hand to fund buybacks.
The two vendors have reportedly been in on-and-off talks since April, and Mitel's private equity owners expect to see a minimum revenue rise of $250m from the deal, Bloomberg continued.
In a Q3 earnings call last week, Avaya CEO Jim Chirico told investors that the company was in talks with a number of parties.
"At this time we are in advanced discussions with multiple parties on a range of strategic transactions to maximise shareholder value. We expect to bring this process to a conclusion within the next 30 days," he said on the call, transcribed by Seeking Alpha.
Avaya declined to comment when contacted by CRN.
"On our earnings call last week, we provided an update with respect to our strategic review process and noted that we expect to bring the process to conclusion within 30 days," the statement read.
"There has been media speculation regarding Avaya's next steps, but it is just that - speculation - and as a matter of policy, we do not comment on rumours or speculation."
Reports emerged earlier this year that Avaya was seeking a private equity-backed buyout to the tune of $5bn.
The company has had a turbulent few years which have seen it go into bankruptcy, flog its networking unit to Extreme Networks, emerge from bankruptcy and float on the New York Stock Exchange.
Mitel itself was the subject of an acquisition last year when it was bought by Searchlight Capital Partners for $2bn.
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