Mitel has finally made a successful bid for rival ShoreTel, creating a company that will become the second largest player in the unified communications as a service (UCaaS) market.
Under the terms of the agreement, Mitel will acquire 100% of Shoretel’s outstanding shares of common stock for $7.50 per share, or a total equity value of approximately $530 million and a total enterprise value of approximately $430 million. The purchase price represents a 28% premium to ShoreTel's closing share price on July 26, 2017.
As a combined company, the new Mitel will become a greater threat to other players like BroadSoft. Upon completion of the deal, the combined company will be headquartered in Ottawa, Canada, and will operate as Mitel. Rich McBee, Mitel's CEO, will lead the combined organization. Steve Spooner, Mitel's CFO, will also continue in that role.
"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," said McBee in a release.
IHS Research says the North American UCaaS market is one that’s continually evolving.
“The UCaaS market in North America is marked by a large and dynamic provider landscape. Mergers and acquisitions continue as providers look to gain scale, new capabilities, and long-term survivability,” said Diane Myers, senior research director at IHS Markit, in a research note.
After ShoreTel stockholders have tendered shares representing more than 50% of the outstanding shares of ShoreTel common stock, and the companies have met certain regulatory approvals, the transaction is expected to be completed in the third quarter of 2017.
The transaction will be completed through a cash tender offer for all of the outstanding shares of ShoreTel common stock, followed by a merger, which will not require approval of ShoreTel's stockholders, in which remaining shares of ShoreTel common stock will be converted into the right to receive the same $7.50 cash per share price paid in the tender offer. ShoreTel's board of directors has recommended that ShoreTel stockholders tender their shares in the offer.
Mitel plans to finance the consideration for the acquisition and associated transaction expenses using a combination of cash on hand from the combined business, drawings on its existing revolving credit facility and proceeds from a new fully underwritten $300 million term loan maturing in 2023.
For Mitel, this deal ends a long saga in the emerging UCaaS supplier segment. In 2014, ShoreTel's board of directors rejected Mitel Networks' $540 million unsolicited bid to acquire the company, saying that it undervalued the company and its growth prospects.
Mitel later offered a revised bid of $8.50, tacking on 40 cents in Mitel common stock on top of an original offer of $8.10 per share. At the time, ShoreTel said the revised offer undervalued "ShoreTel and its strong prospects for continued growth and value creation.”
ShoreTel isn’t the only acquisition target Mitel has gone after in recent years to bolster its portfolio. Polycom abandoned its agreement with Mitel after agreeing to be acquired by private-equity firm Siris Capital for $2 billion in July 2016.
Elliot Management, an activist shareholder, helped broker a deal between Mitel and Polycom in 2015 as a way to scale their operations to gain further share in the unified communications and collaboration segments.