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Mitel IPO in the Works

Mitel Networks has filed for an initial public offering (IPO) of up to $230 million, for which it plans use the proceeds to repay its revolving credit and loans, and for working capital and general corporate purposes, such as acquisitions.Mitel's last reported fiscal year revenues (ending April 30, 2009) were $735.1 million, an increase of 6.2 percent from the same period the previous year. It reported a net loss of $193.5 million, compared with a net income of $12.6 million in the same period a year ago, but it included a goodwill impairment charge of $284.5 on goodwill initially recorded as part of its acquisition of Inter-Tel, according to a filing with the U.S. Securities and Exchange Commission (SEC).

Mitel had planned for an IPO several years ago, but it was delayed due to its acquisition of Inter-Tel. Mitel currently ranks among the leading global enterprise communications system suppliers, but is not in the top competitive tier that includes Avaya and Cisco, among others, based on market share metrics.

Why has Mitel decided to return to the public sector at a time when the economy is still depressed from two years ago? There are several reasons that come to mind. Though the market for enterprise communications products was down this past year about 20%, demand has been improving on a quarterly basis, and the early forecast for this coming year is positive. Avaya recently shelled out $915 million, higher than many industry followers (excluding myself) initially believed the winning bid would be, for Nortel Enterprise Solutions (NES) and its sister Federal Government Systems group, helping to establish a baseline for determining Mitel's market capitalization value.

Mitel faces a potentially very strong competitor for its business opportunities in Microsoft in the coming years, and it may be best to go public now before the software giant is able to establish its market footing. And the primary reason for a near term IPO is that the company needs the money sooner than later, because cash reserves are low and debts are greater than $300 million.

There is no indication from Mitel how many stock shares will be issued or at what price. It's difficult to assess the value of Mitel at the current time. For some perspective, Sir Terry Mathews, one of the company's original founders, reacquired Mitel for $230 million back in 2001, and reportedly invested several hundred million dollars more over the years building up the company. The Inter-Tel acquisition two years ago cost another $723 million, a strong price at the time. Siemens and Ericsson enterprise communications businesses were sold in the past two years at bargain prices, though Avaya's price of over $8 billion when it went private was far higher than anyone expected. I guess we will know what Mitel values itself at when more details of the IPO are filed.