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Mitel to Buy Polycom for $1.96B

Ray Le Maistre
4/15/2016

Mitel is to acquire Polycom in a cash and stock deal valued at $1.96 billion in a move that will create a unified communications and collaboration technology company with expected annual revenues of around $2.5 billion.

Mitel Networks Corp. , which sells cloud-based, on-premises (PBX) and hybrid voice and unified communications systems to enterprises and communications service providers, will integrate videoconferencing system vendor Polycom Inc. (Nasdaq: PLCM), though the latter's brand will be retained. The combined company, which will be based in Ottawa, Canada, will have about 7,700 staff and be run by Mitel CEO Rich McBee.

The deal will come as no surprise to anyone tracking either company, as activist investor Elliott Management (which owns stakes in both vendors) has been agitating for this deal since last November, when it issued a public letter arguing the economic and strategic case for a Mitel/Polycom merger. (See Mitel in M&A Maelstrom.)

In addition to driving economies of scale that will make a combined company more efficient (operational savings of $180 million by 2018) and profitable, Mitel and Polycom claim that the combined company will be the:

  • #1 in business cloud communications
  • #1 in IP/PBX extensions in Europe
  • #1 in conference phones
  • #1 in Open SIP sets
  • #2 in video conferencing
  • #2 in installed audio

In 2015, Mitel reported full-year revenues of $1.16 billion in 2015 and an operating loss of $10.2 million, while Polycom reported revenues of $1.27 billion and an operating profit of $86.1 million.

Mitel is no stranger to M&A: It acquired its way into the mobile core technology market with the acquisition of VoLTE and RCS (rich communications system) specialist Mavenir for $560 million in early 2015 and boosted its position in the voice platform market with the purchase of Aastra Technologies for C$392 million in early 2014. (See Mitel to Acquire Mavenir for $560M and Mitel to Buy Aastra for C$392M.)

The Mavenir deal also gave it a strong position in NFV, from which Mitel has been building since then as McBee explained to Light Reading recently in an exclusive interview earlier this year. (See CEO Chat With Mitel's Rich McBee.)

For more on Mitel, see:

— Ray Le Maistre, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, Editor-in-Chief, Light Reading

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EVP,Stra86854
EVP,Stra86854
4/20/2016 | 1:56:39 PM
Will Polycom lose market share?
Polycom has been the endpoint of choice for most VoIP service providers.  However Mitel is a direct competitor with many of these and heading to compete with more.  I expect most current Polycom IP phone customers to shift to other suppliers rather than to support and purchase from a competitor.

I have to assume that the IP phone business of Polycom and sales to other service providers is able to be sacrrificed in order for Mitel to own Ploycom's devices and enhance thier own services.

I am disappointed to see the Polycom exit from the IP phone market,  They made a good phone.
jbtombes
jbtombes
4/18/2016 | 3:53:07 PM
Re: My money is on Rich McBee
With Cisco ahead of you and Huawei behind you - at least in videononferencing and telepresence - bulking up seems an appropriate strategy. Elliot emphasized the Cisco threat in their letter last fall. I'm assuming McBee has some fight in him.
alangonchar
alangonchar
4/15/2016 | 12:50:58 PM
My money is on Rich McBee
Since Rich McBee joined Mitel in January 2011 - Mitel revenue has doubled and they have been agressive in moving to the new "virtualized" future.

Without his leadership I doubt Mitel would even exist today.

This deal gives them a very strong UC offering on top of economies of scale.
Ray@LR
[email protected]
4/15/2016 | 7:46:44 AM
Will everyone benefit?
Elliott made a strong case for the combination based on market dynamics and economic health -- and of course, getting a deal that would suit its own finances.

But on a broader scale, is this positive for enterprise users and the market in general? Was consolidation necessary? Has Elliott done everyone (apart from those that will lose their jobs in post-merger cutbacks) a favor in forcing this?
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