Mitel’s $2-billion Polycom bid trumped

For the second time in less than two years, Mitel Networks has abandoned an attempt to acquire another firm.

The Kanata firm ended its US$2billion merger agreement with California-based Polycom Friday after New York private equity group Siris Capital made a similar offer.

In October 2014, Mitel nixed a US$540-million proposal to acquire California-based competitor ShoreTel.

The friendly takeover at Polycom fell apart after it received a more favourable deal from Siris that Mitel was unwilling to match. Although the Siris proposal was for a similar amount overall, it was 100 per cent cash and therefore less risky. The Mitel proposal involved about US$500 million in cash and US$1.5 billion in Mitel shares.

Polycom will pay a US$60-million termination fee to Mitel.

Mitel CEO Rich McBee said the merger agreement with Polycom, announced in April, “resulted from a detailed due diligence and negotiation process that we feel accurately determined fair value for Polycom. We feel it would not be in the best interest of Mitel shareholders to adjust the existing agreement.”

Shareholders apparently agree. Mitel shares shot up nearly 20 per cent in morning trading on the TSX to $9.34 — perhaps because there was relief the firm will not be taking on so much extra debt to finance the proposed Polycom purchase.

While McBee’s attempts to purchase the California companies were both part of his plan to transform Mitel into a significant global player in telecommunications networking, the targets differed substantially.

The loss of Polycom, a specialist in video conferencing technology, is likely the bigger setback long term for Mitel.

Had the friendly deal with Polycom closed as scheduled later this year, it would have created a $2.5-billion-a-year multinational with 7,700 employees and significant operations across Europe, the U.S. and Asia. Pre-merger, Mitel had revenues of US$1.1 billion annually and supported a workforce of 4,500.

ShoreTel in contrast had been generating annual revenues of just US$340 million and offered fewer opportunities for expanding Mitel’s product lines.

During the past six years the company has acquired and assimilated five companies including Mavenir, a Texas-based wireless technology firm, and Aastra, a Toronto telecommunications firm.