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Mavenir, We Hardly Knew You

As Mitel divests mobile division to keep the focus on UC&C, 'adjacencies' or 'gambits' like Mavenir are out.

In a surprise press release this morning, Mitel announced that it would be divesting its mobile division that it acquired in April of 2015. In an earlier post, No Jitter publisher Eric Krapf covered the details of the transaction, which involves a sale to Xura, Inc.; Xura is also acquiring Ranzure Networks that was founded by former Mavenir CEO Pardeep Kohli, who will now serve as CEO of the combined company.

This movement is something of a black eye for Mitel CEO Rich McBee, who has been on a tear with acquisitions and attempted acquisitions. Interestingly, Xura's main backer was Siris Capital Group, the investment group that swooped in and grabbed Polycom after Mitel had made an offer.

Mitel paid the equivalent of $560 million for Mavenir, and will now receive $350 million in cash, a $35 million non-interest bearing promissory note and an equity interest equivalent to 125 million equity units in Sierra Private Investments, L.P., the limited partnership that will own both Xura and the mobile division. During an analyst call discussing the divestiture, Mitel CFO Steve Spooner noted that the value of those equity units could range from zero to $125 million. He also reported that the Mobile Division had contributed roughly $200 million to revenues in the trailing 12 months.

During that same call, McBee said that the decision came after a strategic review and the realization that the acquisition had not translated into a requisite increase in shareholder value. Mitel had been trading around $10 per share prior to the Mavenir acquisition (though it dropped to $8.91 the day the acquisition was announced) and is trading around $7.50 today. Further, he noted that significant investments would be required for 5G lab testing that was being requested by carriers around the globe.

This is certainly a change in direction for Mitel, who until recently couldn't say "mobile" often enough. A chastened McBee acknowledged that his company had been maintaining two focuses on mobile and UC&C, and simply couldn't do both, so it is now solely focused on the latter. The move will also strengthen Mitel's balance sheet as what they referred to as "gross leverage" -- typically measured by the debt to equity ratio -- will be reduced from 3.3x to 1.8x.

I have been critical of the Mavenir acquisition from the outset, noting that there was virtually no synergy with Mavenir and Mitel's core UC&C business. At the time, I described the analyst call regarding the Mavenir acquisition, saying, "The executives rattled off many important buzzwords, including mobility, cloud, LTE, IP, virtualization, BYOD, and even SDN. However, lacking was anything approaching a meaningful vision."

Mitel still has a solid position in UC&C, and hopefully the board will allow McBee to continue to pursue it. In the meantime, "adjacencies" or "gambits" like Mavenir are out, and I suspect we'll hear more about "sticking to the knitting."

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