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Mergers & acquisitions

Don Smith's Mitel Shocker

Less than a month after leaving Nortel Networks Corp. (NYSE/Toronto: NT) (see Don Smith Leaves Nortel), Don Smith has turned up as president of a company he left long ago -- Mitel Networks -- with an old colleague, Terry Matthews, who's now chairman (see Don Smith Named Mitel Networks CEO).

"Congratulations to both of you on coming full circle," quipped one analyst on this morning's announcement conference call.

Way back in the 1980s, both men worked together at the Canadian-based PBX company that Matthews helped found in 1972. By 1986, when British Telecom (BT) (NYSE: BTY) took a controlling interest, Smith left to work at niche company AIT Corp. and later Cambrian Systems. Matthews founded Newbridge Networks Corp. (NYSE: NN; Toronto: NNC).

The audience on today's call seemed puzzled at first as to why either man would take a step backward. In particular, why would Smith move from the optical hot seat to take up with -- yawn --- PBXs? And the move conflicts with Nortel's spin on Smith's departure, which was that he was "startup guy."

Both Smith and Matthews quickly set them straight. For one thing, today's Mitel isn't the Mitel of old. That changed in February 2001, when Terry Matthews bought the PBX business of Mitel Corp. (NYSE/Toronto/London: MLT) for about $350 million Canadian and formed a private company, Mitel Networks. The old, publicly traded company now operates under the name of Mitel Semiconductor and licenses its Mitel brand name from Matthews.

The new company isn't focused on PBXs anymore either. Rather, it's starting to move toward what Smith calls "a platform for convergence of voice, data, and video." Specifically, the company is working on relaunching a new kind of switch later this year that not only does PBX duty and voice over IP but supports a range of broadband multimedia applications.

Another surprise came when Matthews announced he plans to merge Mitel Networks this summer with his own company, March Networks Corp..

March Networks is a company launched in July 2000 by Matthews from the assets of Telaxis Corp., which made networked video systems. March Networks is focused on providing broadband IP multimedia applications for healthcare, law enforcement, hospitality, and other vertical markets.

Matthews and Smith said Mitel Networks will add March software and hardware to the basic broadband multimedia platform offered by Mitel.

"I believe this is the best pre-IPO opportunity in North America," Smith said. "We'll offer a complete solution for a new infrastructure.".

Yet another surprise: The infrastructure Smith described isn't in the carrier network, but in the enterprise space, in the business offices, hotels, and hospitals that require a multimedia IP switch.

Can it work? "Clearly, they're the only major non-startup pure play in this space," says David Yedwab, executive VP of Eastern Management Group, a consultancy. "PBXs represent tens of billions in installed base. They understand the market. It makes sense."

- Mary Jander, Senior Editor, Light Reading http://www.lightreading.com
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