Update: Investors applaud Mitel's $430M ShoreTel acquisition

“We’re growing the company by about 30 per cent overnight."
Rich McBee

Shares of Ottawa-based Mitel Networks rose more than seven per cent on the Toronto Stock Exchange on Thursday following the company's announcement that it was purchasing long-time acquisition target ShoreTel in an all-cash deal worth about $430 million.

That’s $110 million less than what Mitel offered ShoreTel shareholders roughly three years ago for the U.S. firm in a deal that was ultimately scuttled.

“We’re growing the company by about 30 per cent overnight," Mitel chief financial officer Steve Spooner told analysts on a conference call.

Mitel said it will acquire all outstanding shares of ShoreTel common stock at a price of $7.50 per share (all figures U.S.), a 28 per cent premium on the firm’s closing share price Wednesday on the Nasdaq. The deal is expected to be finalized later this year pending shareholder and regulatory approval.

Mitel said the combined company will be the No. 2 player in the unified communications-as-a-service market with annual revenues of $1.3 billion, including $263 million in recurring cloud revenues.

The acquisition is expected to generate $60 million in cost savings as the two companies combine their marketing efforts and eliminate duplicate personnel.

"We are stronger together for our customers, our partners, our employees and our shareholders and employees," Mitel CEO Rich McBee told analysts. "The timing is right and the market conditions are prime for this move."

The move continues Mr. McBee’s strategy of growing market share through acquisitions. Since taking over as chief executive in 2011, Mr. McBee has led Mitel through a series of half a dozen major acquisitions that have built the telecommunications firm into a dominant global force.

“This is a very natural combination that enables us to continue to consolidate the industry and take advantage of cost synergy opportunities while adding new technologies and significant cloud growth to our business,” Mr. McBee said in a statement. “Together, Mitel and ShoreTel will be able to take customers to the cloud faster with full-featured, cloud-based communications and applications.”

In the release announcing the deal, Mitel said it will continue to be business as usual for the Kanata-based firm. Mr. McBee will continue to lead the combined organization and Mr. Spooner will also carry on in his role.

With the acquisition of ShoreTel, Mitel will now have about 3,200 channel partners and a global workforce of 4,200 employees.

Also on Thursday, Mitel announced $238.6 million in second-quarter revenue, down from $260.3 million a year earlier. The company reported a quarterly loss of $100,000, an improvement on the $900,000 loss booked during the same quarter in 2016.

Thursday’s acquisition announcement is the culmination of an effort that began several years ago. Mitel originally offered to buy ShoreTel in 2014 for $540 million in cash, but that overture was rejected by the California-based company’s board.

“With the announcement today, this concludes our comprehensive review of strategic alternatives by delivering a significant cash premium for our shareholders,” ShoreTel CEO Don Joos said in a statement.

“Customers are clearly moving to the cloud at a rapid pace. The combination of Mitel and ShoreTel creates a new UCaaS market leader with a differentiated strategy and solution, and a clear migration path so that no customer is left behind or will have to abandon what they already have to cloud-enable their organization.”

The ShoreTel acquisition comes about a year after Mitel failed in a bid to buy another California-based telecommunications giant, San Jose-based Polycom. The California firm had agreed in principle to a merger with Mitel, but the $1.6-billion deal fell through when a competing bidder stepped up with a bigger offer and ultimately acquired Polycom.

Mr. McBee told OBJ earlier this year that Mitel was well positioned for more acquisitions following the sell-off of its mobile division, a deal that officially closed in March. The chief executive and analysts said the sale “simplifies the story” for Mitel, which laid off hundreds of employees worldwide in May in an effort to reduce redundancies within the firm.

-With reporting by Peter Kovessy